Fundamental Analysis

Usually everyday, the Forex currency pair will be moving along slowly (sideways movement, consolidation) and then all of a sudden it JUMPS! It very quickly moves up 30 or more pips, usually in just a minute, and often continues to move strongly for another hour or so. Why? This is due to the release of a “Fundamental Announcement".

Example: Below is picture of GBP/USD 1-minute chart, Forex Chart Server time is GMT + 3. Here you can see on 18/9/2007 at 21:14 price was near 1.9995 and at 21:15 after US FOMC Interest Rate announcement Price started to moving up and in 3 minute it was at 2.0095.

Fundamental analysis? What is this? Fundamental analysis refers to political and economic conditions that may affect Forex currency prices. FOREX traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.

Various news is released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. News is usually released on a monthly basis but some are released weekly.

Some most important fundamental indicators / news are Interest Rates, Non Farm Payroll (NFP), Unemployment Reports and International Trade. Also high on the list to look for are Consumer Price Index (CPI), Inflation, and Gross Domestic Product (GDP). Also keep your eye on M2 Money Supply, Treasury Budget, Producer Price Index (PPI), and Retail Sales.

Interest Rates - can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

International Trade – Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

CPI -- a measurement of the cost of living.

PPI -- a measurement of the cost of producing goods.

GDP -- measures the value of all goods and services within a country,

M2 Money Supply -- measures the total amount of all currency.

Ok Now you know about fundamental analysis, you know after important announcement Forex market can suddenly jumps to many pips within a minute, BUT in which direction you should go? And imagine that it’s 5:59 am, and the price on GBP/USD is at 1.9600. At 6:00 am, we have UK Retail Sales scheduled that are expected to read 0.6%. Imagine, the retail sales read 1.0%, and you feel that it’s good for the pound, so you click on the button to buy GBP/USD at 1.9600, except instead of filling you at 1.9600; your broker slips you and fills you at 1.9640. You got filled at the very top of the spike, you see price retracing now, you get scared, and exit with a loss, and you wonder what happened. Well, what happened is what happens with almost every important news announcement. There is a big spike that happens in the first 5 to 15 seconds, because so many people are trying to go in the same direction. Then traders realize that the market over-reacted, so they close their positions in loss.

Now here is simple trick to avoid this situation.

First you need real time chart, If you have then it’s cool, if not then you can get here and also get $5 free to open free account Win n Win situation. Now go here and view Fundamental Announcements calendar to see what is scheduled to come up for tomorrow weekdays not weekends and note down all important Forex news. Some days you will have more announcements, some days you will have less. But, the more announcements scheduled for a particular country at the same time the more likely you will see some interesting price action.

Before continue you will need to know what your time zone is in relation to GMT (Greenwich Mean Time), as most announcements are published according to this time zone. Visit here to convert GMT to your country time.

Before continue you will need to know what your time zone is in relation to GMT (Greenwich Mean Time), as most announcements are published according to this time zone. Visit here to convert GMT to your country time.

Now, consider in announcement calendars you find that the US will be making some announcements at 9:30am tomorrow. Then at 9:20 am you should be in front of your computer with your Forex charts open to the one-minute or five-minute candlesticks for GBP/USD, and ready to place an order.

Now at 9:25 look at 9:20 5 minute bar and you need to look at the candle and see what the high and low prices are (not open and close). Here place Buy / Long order at plus10 pips to the high price and Sell / Short order at minus 10 pips from the low price. And you should place StopLoss of 20 to 25 pips. Within 5 minutes one of your two trades should be off and running. At this point you should cancel the other trade, if nothing happened within 5-8 minute after announcement just cancel both order and prepare for next fundamental announcement.

Best day to trade:
First Friday of every month, because US announce multiple news on first friday - This month result Here

Best currency to trade:
1) For US and UK announcement USD/CHF, USD/JPY, GBP/USD.
2) For Canada announcement USD/CAD.
3) For Europe announcement EUR/USD.

1 comment:

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