Forex trading is one of the most lucrative businesses in the world today. In most cases, you end up making money within a day or even some few hours. However, it can also be a risky business if one does not study the inequity market well. To study the market, one considers economic factors that affect the worth of a country’s currency in the Forex market. These factors include; interest rates, political events, unemployment rate, inflation rate and central bank policy among others. It is good to note that these factors change over time and the ability to analyze them is vital in the Forex trade.
Therefore, fundamental analysis is a method of Forex trade valuation. The investors use social, political, macroeconomic and macroeconomic factors to value stocks. Forex fundamental analysis tries to measures the value of a currency based on data found on the economic calendar. The economic calendar contains information and data on economic indicators and when their release date. Let’s now discuss each of the fundamental indicators.
The political climate of a country affects its economic status to a great extent. This is because it affects both fiscal and monetary policies of a government. For example, when a country faces political tension the government restricts spending on its major investments. In some cases, the political tension results in civil war. The wars cause a destruction of property and major investments. For a country to finance destroyed property it has to borrow money. The borrowing results in cheap capital and hence lower interest rates. This has a major effect on the currency exchange rates. That is, the value of the currency falls due economic uncertainties. Hence as a Forex trader, it is good to consider this factor.
These are general economic factors that show the economic health of a country. They include interest rates and the goods and service that a nation produces. These factors have adverse effects on the Forex trade market. For example, when a country (let’s say Japan) has unique goods or services, most countries must convert their currencies to Japanese yen to access that good. This increases demand on the Japanese yen. An increase in demand raises the value of a currency in the Forex market. On the other hand if country import goods more than it exports, the value of its currency falls. Therefore, as an investor, you have to consider the balance of trade of a country for you to trade with its currency in the Forex trade market. Other economic factors one should consider is deficit and surplus and inflation rate.
Global monetary power
Here one considers the policies of major economies. These are the country that their currencies do well in the Forex market. By considering these economies and their policies one gets an idea of their money supply. Hence this can help in projecting interest rates, volatility of the stock market and emerging market growth potential. After understanding the global central bank policy, we compare them to the other economies. This helps to project the trends of the Forex trade. For example, low-interest rates on these banks show a risk in Forex market while high-interest rate s the opposite.
Forex analysis is a complex process when analyzing Forex trade. However, it is a more safe method which guarantees returns. All you have to do is master the basics and you will be successful.