Fundamental Analysis
- Fundamental analysis is the study of Nation's currency with respect to the various parametrs & are reflected through Economic News releases.
- Traders follow these News releases to make their choice of trading perticular currency.
- These news reports are based on statistical analysis of a currency on data about Central Bank interest rate, Gross domestic product(GDP), Employment rate of a country, Manufacturing sector, International trade, retail sales etc. these reports are called as Fundamental indicators.
- Fundamental analysis is based on these fundamental Indicators.
- The Central Bank of any country plays a major role in defining value of a currency. It has to maintain the balanace between growth of economy & curbing Inflation in the country. This is how it works,
- Inflation is nothing but rise in prices that leads to decrease in purchasing power of currency. To control inflation, CB raises interest rate. It attracts Foreign investment leading to currency appreciation & economy boost.
- But when interest rates are high, domestic businesses and consumers get hurt as they rely on banks for borrowing money.
- Central bank interst rates & employment data are generally considered as the crucial Fundamental indicators.
- Other factors which affect the currency of any country are Political events, Elections, Terrorist atacks, Natural disastors, Oil & important commodities price changes etc.
- Thus traders who trade with Fundamental indicators have to develop skills to analyse news reports, study markets through media, follow market price action (where the currency is heading) to make the correct decision on the future value of any currency.
