Forex fundamentals should never be forgotten because they never change. When you’re in Forex trading, and you’re just getting started. The whole forex arena can seem like a big scary place. Full of what seem to be complicated charts and unfathomable jargon.
So taking comfort and sticking to the forex fundamentals can be very comforting.
Because when you first start trading.
You know it makes sense to make your moves based on the factors that are known to influence currency values.
Factors such as social, economic and political events.
But as you learn more and more trading strategies, you can forget them.
It is a mistake to forget Forex fundamentals.
This forex ebook will help remind you.
All you need to do to determine which way these currencies are going to be headed. Is to find out if there’s anything going on in the world. That could turn up demand or turn it down for any particular reason.
Of course, there’s just one little complication. How exactly do you know what turns demand up and down?
In the movie Social Network, in the opening scene with Zuckerberg and his girlfriend sitting in a bar.
He casually talks about how a friend of his who likes studying meteorology.
Has just made $300,000 betting on oil futures.
The girl innocently asks how he managed to make a fortune on the markets.
When he was a meteorology geek. He says it’s simple. If you know how to study the weather, you know how cold winter is going to be that year. If it’s going to be extra cold, you can bet that oil prices are going to rise.
That’s how it works with Forex fundamentals too.
There’s no telling where your indicators can come from. Consequently you always need to look at the unfolding news. Or study something specific in the Forex market. To uncover a lead somewhere. That could lead you to clearly see that demand for a certain currency will rise or fall.
If you’re interested in Forex fundamentals. You’ll know how to study the different economies around the world. And any pending movements for their money effect. If you study, say, Japans economy. And find out if it’s going to improve over the coming months against the USA. If it is, you bet for the Yen, and against the US dollar.
Of course, that’s kind of an oversimplified way of looking at forex fundamentals. You also need to look at what kind of government a country has. Do they have, for example, a very socialist kind of government. That if they have a rising currency , will realize that it’s bad for their domestic export businesses. And try to buy massive quantities of dollar reserves to see if they can effect the value of their currency. If on the other hand the government is a purely market-based economy. They’re going to just let the markets correct themselves.
We have found that forex traders tend to focus on one type of analysis or the other. They focus on Forex fundamentals or technicals in their trading. And will often completely dismiss other types.
We encourage traders to spend the time it takes to understand the underlying forces moving the market (fundamental analysis). As well as what is happening in price, volume and volatility (technical analysis).
We separate fundamental forces into two categories:
Of course trade number themselves are obviously the key announcement. And because of that we pay attention to them when analyzing this fundamental. Trade data is released in most economies once a month. And the trend of that information is important. If exports are increasing over time. We would expect the currency to appreciate versus other currencies. Whose, exports or net exports are shrinking.
Other announcements will affect trade numbers indirectly. Are also important. For example, if producer prices are increasing. It can make an country’s exports more expensive. And therefore could hurt trade export numbers. Similarly, falling commodity prices could damage exporter profitability. And in turn hurt a currency’s value.
Whether you are looking at the actual trade numbers from an economy. Or supplemental trade information like producer prices and commodity values. Trade fundamentals will have a bigger impact on the commodity currencies. Consequently make sure you place the right fundamental emphasis on the right currencies.
Capital Flow Fundamentals
Capital flows are a measure of the pace of investment in an economy. The US traditionally attracts the most investment in government debt among the major economies. And is therefore sensitive to relative interest rate yields from one economy to another. If rates and other yields are high in one economy compared to others. Then that currency is likely to appreciate in value.
The fact is that the benchmark interest rates, stock market performance and market volatility. Will also affect capital flows. Consequently these factors will impact currencies most sensitive to capital flows.
Because basically, paying attention to forex fundamentals outlined in this ebook. Will show you. That you have to pay attention to everything that could affect the world.
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