Forex Fundamental Analysis


Forex fundamental analysis looks into the economic health of a country to determine if that particular country's currency will likely weaken or strengthen over a given time period from it's present value.

Economists look into the country's health by studying various government and corporate produced fiscal reports such as Balance of Payments, Gross Domestic Product trends, Manufacturing / Construction data, Inflation rates, Employment data, Retail Sales etc.

The elected government has the job to ensure that their country is on a long term stable and sustainable path economically. They want to achieve this so that businesses and consumers can function in a steady predicable prosperous manner without the "bubble highs" and "depression lows" that can cause problems for society.

Each countries government uses it's own Nation's Bank / Central Bank / or Reserve Bank to try and ensure monetary stability. The Bank uses a number of measures to achieve this, namely;

Moving interest rates up or down

When interest rates are raised this attracts money from overseas into the country which in turn pushes up the country's currency. Overseas investors (including return of domestic money which may have been invested overseas previously) are attracted to more favorable returns on deposited funds along with the knowledge that the country economic health is improving since interest rates are generally increased as a measure to slow down a economy that is moving a little too fast.

When the Nations Bank increases interest rates, this puts a constraint on the business sector to borrow more funds and expand their business operations, which in turn slows the economy. Hence, the Nations Bank (generally) would not increase interest rates in an economy that needs more stimulus and faster growth.

Price limits / Dirty floats

The Nation's Bank may decide to purchase or sell the currency to stop the price from falling below or rising above a certain level.

eg. A currency rate that is too high, hurts it's country's industries ability to compete in the export world. Overseas buyers may find the price of purchasing that countries goods too expensive and may decide to purchase elsewhere, hurting not only the "exporter" but also numerous industries and the labor markets associated with the "exporter".

Press / Media

Another good tool for the Nation's bank to influence it's currency's exchange rate is to use the Media to "talk it up" or "talk it down". Large investors / corporate speculators / hedge funds / traders etc listen with eager anticipation to public speeches and media releases produced by the Bank. 

Read about a not so perfect example of how the Swiss National Bank shocked the markets on 15 January 2015 and it's affect. Click here to go to the brainyforex page.

Traders and Speculators Goals

Traders and speculators participating in the currency markets need to focus their attention on researching what the Nation's Bank / Central Bank or Reserve Bank has their pricing model agenda focused on. ie Is the Bank's current main focus on Inflation? Or maybe Stimulating a stagnating economy? or maybe focused on driving down the currency rate because exporters are struggling?  

A listing of the Nation's / Central Banks

Australia's Reserve Bank of Australia  http://www.rba.gov.au

England's Bank of England http://www.bankofengland.co.uk

Europe https://www.ecb.europa.eu

Japan https://www.boj.or.jp/en

Canada http://www.bankofcanada.ca

USA http://www.ny.frb.org

Switzerland http://www.snb.ch

Find out what is in the news

Bloomberg's currency section, read here.

ForexFactory news calander here.



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