Thursday, March 12, 2009

Fundamental Analysis Intro

You have now reached the 4th lesson in this free Forex course. This lesson will
briefly introduce you to fundamental analysis. Fundamental analysis is the most
difficult aspect of Forex interpretation. It requires an extended period of learning
fundamental concepts and their impact on the Forex market.

T o learn a fundamental style of trading completely would require years of
experience. So how can you take advantage of fundamental concepts without
having those years of experience? The Forexezine provides the answer. You
will receive articles that explain different fundamental market concepts - one
concept at a time.

Over time you will have an increasing arsenal of fundamental concepts to add to
your technical trading skills. Tips on how to compare fundamental results with
technical signals will be given in the "Forex Fundamentals" issues of the
Forexezine.

So what does fundamental analysis do? Fundamental analysis uses "economic
indicators" and other news related information to determine an impact on Forex
prices. These "economic indicators” are published at regular intervals and many
of the International Banks use this data to forecast Forex trends. The economic
indicators measure how well an economy of a country is doing. This data can
then be used to compare the economy of one country with another. The status of
an economy will influence its exchange rate, so fundamental analysis provides us
with ways to measure potential Forex trends.

When this data is made available to the public there is a reaction from investors
and speculators. Information in the form of news and economic indicators is
vaguer than that of technical indicators. There is a lot of gray area in this type of
Analysis. The market will ultimately react to how people think the economic data
compares to the current market situation.
Economic indicators usually reveal information that "Should cause a currency to
go up in price" or "May cause a currency to go down". The words 'should' & 'may'
in the quotes above reveal the ambiguity of the fundamental data.
Here is an example of what analyzing fundamental data is like. Let's suppose
there are six economic indicators (there are a lot more). Let's call our six
indicators A, B, C, D, E, & F. Now we wait for the data from our indicators to be
published in a financial magazine or at an online source. We manage to get the
readings for our economic data for the EURO:
Indicator A: is in a range where the Euro may go up
Indicator B: is in a range where the Euro should go up
Indicator C: is in a range where the Euro could go down
Indicator D: is in a range where the Euro usually goes down
Indicator E: is in a range where the Euro could go up
Indicator F: is in a range where the Euro may go down

By looking at the above indicators, you don't know what the Euro is going to do.
Furthermore, currencies are always traded in pairs (explained in more detail in
lesson #5). You would have to get the fundamental data for another currency pair and compare it with the EURO to make a trading decision. I think you can
appreciate that this is no simple task.

I do not want to discourage you away from fundamental data. The best way to
learn is one piece at a time. Eventually you will build a puzzle from all of the
fundamental and technical data and make more informed trading decisions.

At this point I am going to list some of the most commonly used fundamental
indicators (sometimes referred to as economic indicators).
1. The Gross National Product (GNP). This number represents the total financial
position of an entire country. This is probably the most referred to economic
indicator (although by itself it does not provide enough info to make decisions).
2. The Gross Domestic Product (GDP). Basically this is the GNP for the United
States. This measure is still referenced, but is almost completely phased out of
use. The term GNP has been used to represent GDP as well.
3. Consumer Price Index (CPI). Measures retail prices in a country.
4. Producer Price Index (PPI). Similar to the CPI, but for wholesale prices.
5. GNP & GDP Deflator. Readjusts the GNP & GDP for inflation.
6. Industrial Production (does not have an acronym).
7. Capacity Utilization
8. Unemployment rates also have an impact on foreign currency exchange rates.
9. Personal Income has an impact on foreign currency exchange rates.
10. Consumer Spending Indicators also influence Forex prices.

These are just a handful of economic indicators used in fundamental analysis.
Throughout the course of the Forexezine you will be able to interpret these
indicators.

If you do not like the concept of fundamental analysis, you can certainly skip it
altogether. There are plenty of purely technical systems out there for you to trade
with (like at 4xtrend). A key concept to technical analysis is that all of the
fundamental data is ultimately revealed in the price anyway. And if you have a
system that must be triggered when the price goes up or down, then you have a
great tool.

The fundamental analysis issues of the Forexezine are purely for those people
who are interested in them. I will tailor the frequency of topics to the reader’s
preference.
I always encourage you to drop me a line with any questions, suggestions for
new articles, articles you have written, or just ideas related to the Forex. Please wait until after the next lesson to ask any questions about the Insider Secrets of
Online Currency Trading course. I still have some more concepts to add to get you
started trading in your own free demo account.

There are a few more things that will help you get stated demo trading in lesson
#5. You won't want to miss the next lesson.

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