Forex trading gets profitable and successful if you apply a proper trading technique for making maximum profits and reducing the risks of losses in it. All depends on predicting the right behavior of the currency prices and that is possible if your analysis is good and accurate. There are two basic types of Forex analysis and one is Technical Analysis and other is Fundamental Analysis. We will discuss about the fundamental analysis type here.
What Is Fundamental Analysis?
Fundamental Analysis refers to the analysis of the currency prices movement on the basis of political and economical conditions that may affect the prices. The Forex traders at XFR Financial Ltd who do fundamental analysis rely on the information gathered by the news reports on unemployment rates, economic policies, growth rate and inflation. Fundamental analysis is used to get a broader picture of the economic conditions which affect a particular currency. Most of the traders use fundamental analysis in conjunction with the technical analysis and get a better forecast of the future trend of the currencies. Currency market is affected by the law of supply and demand and which is affected by the economic conditions. The strength of the economy and the inflation rates are the two most important economic factors affecting the law of supply and demand. The strength of economy is affected by GDP, trade balance and foreign investments.
XFR Financial Ltd Talks About The Indicators Of Fundamental Analysis
There are different indicators which are released by academic sources and government which are reliable measures of economic health and all sectors of investment markets follow that. These indicators are released every month but some are released weekly at XFR Financial Ltd as well. The 2 most important indicators of fundamental analysis are Interest rates and International trade. Other fundamental indicators are Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Managers Index (PMI), and retail sales.
Interest Rates- These indicators have either strengthening effect on a particular currency or a weakening effect. High interest rates attract foreign investment and local currency goes high. But many investors have different opinions and therefore a consensus on the affect of this indicator has to be taken.
International Trade- When there are more imports than exports, it means a trade deficit and this is an unfavourable indicator. It means that money is flowing out of the country to purchase the Foreign made commodities and this devaluates the currency. However market expectations say whether a deficit trade balance is unfavourable or not. If a country is habitual with a deficit trade balance then it may not bring effect and trade deficits will only affect prices of the currency if they are more than the expectations.
Other indicators at XFR Financial Ltd are CPI- which measures cost of living, PPI- cost of producing goods. GDP means the value of all the goods and services produced in the country. There are 28 major indicators which are used in United States. Fundamental indicators have strong effects on the financial markets so the traders must be aware of them while preparing trading strategies.