The most important and most complicated component of currency dealing is the ability to analyse tendencies of market changes and, respectively, forecast what factors and how will influence currency rates. Price behaviour includes both opportunities of quick gain of profit and possibilities of quick and considerable loss. That’s why correct forecasting of market movements, assessment of events, as well as the understanding of rumours and expectations, is a required component of broker’s or dealer’s work and is a guarantee of his successful activity. There are many factors that influence both, the whole currency market in general and some currencies, in particular.
There are two main analysis methods of the market situation: fundamental analysis and technical analysis. The first one assesses the situation from the point of view of political, economic, financial and credit policy. The second one is based on methods of graphic research and analysis based on mathematical principles.
Fundamental analysis implies the study of various messages about financial events in the world, about the activity in the political and economic life in both specific countries and in the world community, in general, that can influence the development of the foreign exchange market. Some analysis is done to understand what changes in the currency rates they can cause. Information about the functioning of stock exchanges and of big companies of the type of market-makers, the discount rates of the central banks, the economic and administration policies, the possible changes in the political life of the country, as well as various signs and expectations are found to be important here.
Fundamental factors are assessed from two positions, as a rule:
from the point of view of their influence on the official discount rate;
from the point of view of the condition of the national economy of the country.
Fundamental factors that influence the FOREX market.
Fundamental analysis distinguishes four groups of factors that influence the market directly:
economic;
political;
signs and expectations;
force majeure.
Classification of news according to the degree of their expectancy:
accidental and unexpected – usually some news of political and natural origin, more rare economic news (political instability in the country, wars, natural disasters, etc.);
planned and expected – usually news of economic character, more rare – political news.
The economic group of factors and their influence on the market are based on the axiom that any currency is a derivative of the economic development of the country and its cost may be regulated with the help of certain economic measures.
The economic group of the factors influencing the market can be divided into the following components:
information about the economic development of the country;
trade negotiations;
meetings of the central banks;
any changes in the monetary and credit policy;
meetings of G-7, economic unions or commercial alliances;
speeches of the heads of central banks, heads of governments, distinguished economists concerning the situation of the foreign exchange market, changes in the economic policy, economic situation in the country or their forecasts;
interventions;
neighbouring markets;
speculation.
Fundamental analysis is one of the most complicated parts, and, at the same time, one of the key types of work on the foreign exchange market. It is much more difficult to make fundamental analysis than any other analysis, as the same factors influence the market differently in various conditions or, being decisive, may become utterly insignificant. It is necessary to know the interrelation and mutual influence of two different currencies that reflect the ties between various states, the history of development of currencies, to determine the cumulative result of some economic measures and to establish connection between events that may originally seem to have no connection at all. In addition to some basic and very formal rules, it is required to have considerable work experience at the foreign exchange market.
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| Doing transactions with the use of leverage can have a considerable effect on the status of the trading account, both in your favour, as well as against you. Please remember that any professional trader risks only the money the loss of which will not lead to financial collapse. That allows the trader to make sensible and cool-headed decisions. Make sure that you are fully aware of the degree of risk and you are ready to bear full responsibility for the transactions carried out. |
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