Fundamental analysis

A fundamental analysis is formed on the basis of an analysis of economic, social and political events that in one way or another affect the supply and demand of the currency.

By analyzing various factors, you determine which economy is healthy and whose economy is in decline. The better the state of the country's economy, the more foreign companies and investors will invest in its assets.

Suppose that economic indicators in the United States show steady positive dynamics, and as the country's economy is getting better, there is a need to raise interest rates to control inflation.

Higher interest rates make dollar-denominated financial assets more attractive. If the US interest rate is higher than the interest rate of the Central Bank of Japan, then this will inevitably lead to a strengthening of the dollar against the yen (USD / JPY).

What is the reason for this? The fact is that in the modern economy, the most reliable income-generating instruments are government securities and bank deposits, the percentage of which directly depends on the Central Bank rate. With the current level of free movement of capital, money rushes to where the percentage is higher.

Naturally, it is most profitable to buy dollars for yens and place them in a US bank on deposit. Therefore, increased demand for the purchase of a certain currency also leads to its further strengthening.

As a rule, economic indicators make up the bulk of the data used in fundamental analysis. The important thing is not so much the numerical value of the indicator as the correspondence of the preliminary expectations of analysts with real data. The most rapid ups or downs in currency quotes occur precisely during a significant discrepancy between forecasts and actual indicators..

In addition to the interest rate, the most important fundamental indicators are GDP, trade balance, unemployment, inflation, etc.

All these factors, in one way or another, reflect the state of the country's economy and, as a result, affect the rate of its national currency. Forecasting and analysis of economic factors is not very difficult. However, it must be remembered that the driving force of the market is not the factors themselves, but their expectation, i.e expected results of the country's economic activities.

News Factors


Every day, dozens of more or less significant events take place in the world, which we learn about from television screens, newspaper pages or web pages. Often these events appear very unexpected for the general public and have a strong impact on financial markets. These may be statements by politicians and heads of central banks, as well as technological disasters or natural disasters.

This section is the most difficult section of the analysis, as it is poorly amenable to any forecasting and requires lightning-fast and cold-blooded decisions from the trader. Complicating the situation is the fact that events that are very similar in meaning can lead to completely different consequences. For example, natural disasters are formally very bad news for the economy and therefore, should lead to a depreciation of the national currency. But at the same time, regularly occurring floods in Europe have not yet led to significant changes in the euro. This is explained by the fact that on one hand, floods did not harm the main economic structures, and on the other, any country has economic funds for emergencies that almost completely neutralize the consequences of such natural disasters.

In conclusion, it is worth noting that the main difficulty of fundamental analysis is that at the same moment in time there are a large number of fundamental factors on the market. Some of these factors affect the price increase, while the other on the contrary, reduces the value of the currency.


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