Fundamental analysis is analysis of economic and political news, statistical data and macroeconomic indicators in order to forecast the behavior of price on the exchange market. If you exclude the market, then the principal fundamental factor directly or indirectly determining the relative currency value will be the economic situation of issuing country. The main source of information of different countries economic environment is the news. In the modern world there is a whole informational infrastructure specialized in economic news, statistical data and forecast publication and forecasts. Fundamental data arrive regularly, usually on the specific days and at the same time, and the extent of their impact of the foreign exchange rates is evaluated in proportion to their significance. We publish the most significant news and data on our website in the analytics section.
Fundamental analysis tries to identify the interrelation between political, economic and other factors affecting the economy of the country and foreign exchange rates behavior. The important economic indicator affecting the exchange rates are:
- gross national product;
- industrial production volume; unemployment rate;
- growth of monetary supply on the internal market;
- inflation rate and expectations;
- level of interest rate;
- payment capacity and financial soundness of the country;
- trust to the national currency;
- trading balance;
- dependence of external sources of raw materials and other.
The following major central banks are traditionally distinguished as those that have the most impact on foreign exchange rates dynamic patterns:
- US Federal Reserve (UFR). UFR is the independent authority of US federal government and reports to the Congress. Despite this fact, members of UFR Management Board are appointed by United States President. Ben Bernanke had been a Chairman of Federal Reserve till 31.01.2014. After that the office was taken up by Janet Yellen. It should be noted that the Federal Open Market Committee (FOMS) exists within the Federal Reserve System. FOMC is one of the key structures of international exchange markets state regulation (the FOMC establishes the level of primary interest rate within the country. Ben Bernanke is also the Head of FOMC.
- European Central Bank (ECB). The Head – Marion Draghi.
- Bank of England (BOE). The Head – Mark Carney.
- Bank of Japan (BOJ). The Head – Haruhiko Kuroda.
- Reserve Bank of Australia (RBOA). The Head – Glenn Stevens.
- Reserve Bank of New Zealand (RBONZ). The Head – Alan Bollard.
- Bank of Canada (BOC). The Head – Stephen Poloz.
- Deutsche Bundesbank (BuBa). The Head – Jens Weidmann.
- Swiss National Bank (SNB). The Head – Thomas Jordan.
The most important macroeconomic indicators:
- Interest rate.
The same as refinancing and discount rate. The rate at which the central bank of the state provides loans to the commercial banks. Refinancing rate is one of the most important economic indicators, as long as it reflects monetary management policy of the state and determines the level of interest rates in economy. By changing the discount rate the Central banks controls th value of money in economy, loan funds availability, monetary supply and inflation, and thus influences the whole economy in general and national currency exchange rates in particular. Discount rate is in a direct proportion to the foreign exchange rate and in inverse proportion to the economic growth, income of population, monetary supply and inflation.
- Gross Domestic Product or GDP
GDP is the primary indicator that reflects the condition of national economy. GDP is expressed as an index in relation to the previous considered period and as an absolute value of total on prices on manufactured goods and services. Among the three report versions, the first one, advance, is the most important. The report is issued quarterly. It is published and reviewed on monthly basis at 16:30 by Moscow time after 20th day of every month following the accounted period.
- Unemployment Rate.
Unemployment rate is a percentage of economically active population that is currently unemployed by different reasons. Data are published on the monthly basis, at 16:30 by Moscow time on the first Friday of every month following the accounted one.
- Nonfarm Payrolls.
The number of new jobs in the nonfarm sectors of the economy per month. This indicator shows the variation of employment level within the country. Growth of this indicator means increase of the employment level and subsequently the appreciation of dollar. It is also called Market Moving Indicator. There is an empirical rule stating that the increase of Nonfarm Payrolls by 200000 per month can be equated with GDP increase by 3.0%. Data are published on the monthly basis at 16:30 by Moscow time on the first Friday of every month following the accounted one.
- Producer Price Index or PPI.
Producer Price Index shows average temporal change of prices established by the producers on produced goods and service for wholesale and retail companies. Data are published on monthly basis at 16:30 by Moscow time on 14-19 th day of month following the accounted one.
- Consumer Price Index or CPI.
This economic indicator is designed to track the temporal changes of prices on consumer goods and services purchased by households. Usually the growth of inflation indicators positively affects the exchange rate of national currency. Data are published on monthly basis at 16:30 by Moscow time on 15-20th day of every month following the accounted one.
Retail Sales. This index shows variation of sale volume in the retail sales area. Retail sale volume is one of the consumer spending indicators, and therefore it can be used as the measure of consumer confidence and serve as the reference mark for foreign exchange market in the repeated pints of economic cycle. Such indicators are especially important for economy of United States, as long as consumer demand is its main driving force. Data are published on the monthly basis at 16:30 by Moscow time on the 12-15th day of every month following the accounted one.
- New Home Sales
New Home Sales, the indicator of new residential single-family unit sale volume. It includes geographic split and the indicator of price and the supply of available residential units (the number of months required to fully exhaust current new residential unit supply at the current sale rate. Data are published on the monthly basis at 18:00 by Moscow time on 25th day of every month following the accounted one
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