WHAT IS FUNDAMENTAL ANALYSIS?
This method of study involves predicting the price movement by utilizing the news as an economic indicator. Traders who use this kind of analysis rely solely on economic forecasts and they believed that specific news can move the market prices significantly.
FUNDAMENTALISTS ECONOMIC INDICATORS
So how do these interest rates affects the market price?
Basically, investors will put their capital to countries with high-interest rates, so in effect, the higher the interest rate of a country the more the investors will put their money in, creating a trend in a currency pair. If the country decrease in interest rate, it is known to be bearish, and if the country announces an increase in interest rate it is known to be bullish in currency against the other.
Non-Farm Payrolls is the data release from the Bureau of Labor Statistics that shows the summary of payroll jobs in a country. An increasing number of unemployment is known to be bearish to a currency pair and a decreasing number of unemployment is known to be bullish. Non-Farm Payroll usually create an explosion in the market price depending on the data release, meaning, it moves the exchange rate of the currency pair significantly in a small period of time to one direction either bullish or bearish.
Central Bank Policy
Central Banks is known to be the biggest bank that exists in a country that provides financial services to the government. In the US, their central bank is known as the Federal Reserve System while in Europe, their central bank is known as the European Central Banks. These are only 2 of the major central banks out there and there are many more.
Central Banks usually act as a lender to the country's government whenever a government fails to sustain its budget from National Expenditures. As the Central Banks lends money to the government or "Print more money for the government" the number of goods and services doesn't change but the buying power of individual increases for spending goods which can result in higher inflation.
Inflation is basically the rate at which the average price level of goods or services increases over time. Printing more money will result in more demand and less supply.
In simpler terms, inflation lowers the value of money thus, a bearish effect to a currency pair.
Political Figures or Event
These political figures or event pertains to speeches of well-known personality for which an economy of a country can be greatly affected.
For example, the speech of Donald Trump against Iran in January 2020.
The day that an Iranian missiles fell on an American base.
According to The NY Times,
"Trump said that “Iran appears to be standing down, which may be a good thing for all parties concerned and a really good thing for the world,” He added "The us is prepared to embrace peace with all who seek it"".
This news became bullish to USD currency due to the number of investors that gains confidence about the speech because a cold war was prevented from happening.
THERE IS MORE ECONOMIC NEWS OUT THERE THAT CAN GREATLY AFFECT PRICES OF A PRODUCT OR CURRENCIES. WE CAN ACCESS THIS DAILY NEWS FROM SITES WITH ECONOMIC CALENDAR.
Access economic calendar here.
IT IS A BEST PRACTICE TO USE A COMBINATION OF TECHNICAL AND FUNDAMENTAL ANALYSIS DURING TRADING TO IMPROVE YOUR TRADING ACCURACY.
THANK YOU FOR READING AND TRADE AT YOUR OWN RISK! 🔥🔥🔥