Fundamental analysis – Chapter I.

Tuesday, Dec 16 2014

As it was said in the final chapter of introductory part in Forex trading, fundamental analysis deals with economic events that cause price movements. At the beginning of the section which will in its chapters deal with five most important fundamental factors, what must be brought to our attention is that price movements caused by economic events depend a lot on speculation on what the results may be. Forex traders buy or sell currencies in anticipation of most important news. For example, if the results of an economic report are expected to be negative, then traders tend to sell the currency in question ahead of the report's release, causing the price to fall. If the results beat this expectations traders will start buying currency causing its raise.

First of five important fundamental factors we will deal with is Employment. Employment figures are important for Forex traders because employment directly affects consumer spending and consumer spending affects inflation, which plays key role into central bank decisions on interest rates. For example, if the Australian employment grew more than expected, this means that consumers will spend more, which will spur inflation and this will cause uptrend in Australian dollar. Each central bank has its targeted inflation, and if inflation moves far away from this target central banks must introduce monetary measures which would support consumer spending. Also, what is important with employment figures are also wage prices that must grow in line with forecasts. If wage prices are in decline this would prevent consumers from spending more, so even if employment grew negative trend in wage prices can overall cause decline in currency prices.

In the next chapter we will say more about importance of figures which indicate rate of economic growth.