Category: Fundamental Analysis - Page 2

Main Economic Indicators for the Economy of Europe and the Euro (EUR)

The fundamental indicators shown below are of high importance for the euro, however, since the EMU (Economic and Monetary Union, the countries within the European Union which share a common market and a single currency, the euro) is composed of 17 countries, it is essential to be aware of major political and economic events of the member countries, such as changes in GDP, unemployment, and inflation. The major economies of the EMU are Germany, France, and Italy, for which, in addition to general economic data from the EMU, economic information from these three countries have the most relevance for the euro.

How to trade Forex with economic news?

by rcanessa

The events and economic news bring strong movements in the financial markets at the time of publication. In this article we will explain all the keys to trade these scenarios successfully.

It is possible that more than once we have suffered the consequences of economic or political events with an open position. In such situations we observe how the market, suddenly, takes a strong impulse and sometimes advances in our favor and others against us.

There is no doubt, before and after the publication of an economic news the market reacts, and in many occasions in a very violent and unpredictable way. If you do not know how to handle these situations well, it is possible that you make the wrong decisions, those that inevitably lead to loss.

The objective of this article is precisely to learn how to improve your trading during these situations and try, with success, to trade with economic news. Being in a position to be able to make the appropriate decisions when important economic events are published, so that we can take advantage of the high volatility that occurs.

Risks of trading Forex with the news

by rcanessa

In a future article, we will see some techniques to trade the fundamental news in Forex. Before going on, you have to take into account the advantages mentioned in previous lessons about news trading but also the risks and disadvantages that I will expose next and that you will be able to experiment frequently when important market news is published. As with any trading technique, news trading can be profitable but risky, especially for novice traders

Increase of Bid-Ask spread

Some brokers can guarantee the execution of your orders during the publication of important news but not the spread, others can guarantee the spread but not the execution, and others may not guarantee either one thing or another and let the market decide what it can offer you. You will see very often how the spread increases considerably (2, 3, 10, or even more pips) moments before and after the publication of economic news or important economic indicator. If you are going to pursue small profits, 10 or 20 pips, this increase in the spread will also increase the chances of your trades ending up with losses.

What is the Japan Tankan Survey Indicator?

by rcanessa

What is the Tankan survey?

It is an economic survey of Japanese business which is conducted by the Bank of Japan (BoJ), the country’s central bank, which uses the results to formulate monetary policy in Japan. The report is published four times a year in April, July, October and mid-December.

Long-Term Prediction Models of Exchange Rates in the Forex market

by rcanessa

In this article we will examine the different models used in fundamental analysis to predict changes in currency prices which are used by analysts of the most important investment banks. These models may be of interest to all traders who want to increase their knowledge regarding fundamental analysis applied to the Forex market. Currently there are seven main models for forecasting exchange rates:

The Theory of the Balance of Payments (BOP)
The Purchasing Power Parity (PPP)
The Interest Rate Parity Model
The Monetary Model
The Real Interest Rate Differential Model
The Asset Market Model.
The Currency Substitution model

US Initial Jobless Claims Indicator

by rcanessa

The Initial Jobless Claims indicator is a report that records how many people have applied for unemployment benefits in the United States, providing information on the state of the labor market of that country. This is a weekly published data, and provides information on how many people applied for unemployment benefits last week. Therefore, this report is also known as weekly jobless claims.

The report of the Initial Jobless Claims is prepared by the Employment and Training Administration of the U.S. Department of Labor, and is published on Thursday of each week at 13:30 GMT, with data from the previous week.

Real Interest Rate Differentials Model

by rcanessa

The Real Interest Rate Differentials Model indicates that movements in the price of currencies are determined by the levels of interest rates of the countries. Thus, the currencies of countries with high-interest rates should grow in value while the opposite should happen with nations whose interest rates are low.

As we will see below, this model is not able to explain all the movements in the currency market, although much of what happens in the Forex (and in other financial markets) is related directly and indirectly to interest rates.

Bases of the Model

Whenever a country raises its interest rates, international investors discover that the currency of that nation has a higher yield and therefore these investors start buying the currency. This theory was very successful in 2003 when the spreads of interest rates were quite close to the highest levels of the past years.

Fundamental Analysis in Forex

by rcanessa

Fundamental Analysis of the Forex Market Forex fundamental analysis is a type of market analysis that identifies and measures factors that determine the intrinsic value of financial instruments such as economic and political environment. It is included in the fundamental analysis any factor affecting supply and demand of the instrument traded. For example, a study of fundamental analysis for a … Read more

Inflation and its impact on financial markets

by rcanessa

We can define inflation as the general increase in prices of goods and services in connection with a currency at a specific time period. When the price of these resources increases, the purchasing power of the country’s monetary unit drops so the people of the country can buy fewer goods and services and this has an overall impact on the economy. In other words, this means that inflation causes the purchasing power of a currency to decline.

Inflation has a negative effect on all members of society regardless of their socioeconomic level, and obviously, it affects all consumers in the economy of a country, for this reason, is one of the most important economic indicators for Central Banks and investors of financial markets such as Forex.

Many economists believe that inflation can be positive if it has a moderate level. Meanwhile, central banks invest huge efforts to keep inflation within well-established limits, so that the economy of the country can take advantage of the positive aspects of inflation while at the same time the negative effects of it are minimized.

One of the main measures implemented to counter the inflationary pressure is rising interest rates. When interest rates rise, commercial banks proceed to increase the interest of the loans they make to their customers.

Currency wars

by rcanessa

Definition of currency wars

It consists of manipulating the currency to sell more. You lower the value of your country’s currency and artificially lower your products to make them more attractive in other countries and increase your exports.

How can a country manipulate its currency? There are many ways, but simplifying, the two main ones would be:

Lower interest rates. You pay less to have the coin. People prefer to invest in other currencies with higher interest rates.
Sell a lot of your currency in exchange for other foreign currencies. In this way, you flood the market with yen, for example, and that depreciates the currency.

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