What factors are important in fundamental analysis on Forex
The value of any currency is determined by the state of the economy of that country or group of countries (for example, for the Euro, these are the countries of the European Union that have accepted the currency) in which it circulates. The real sector of the economy – all enterprises operating in the manufacturing and service sectors bring profit to the state budget and form the real value of the currency.
Once the value of money was determined by the country’s gold and foreign exchange reserves, today there is no direct relationship, but the greater the country’s economic capabilities, the greater its ability to maintain the value of its currency.
And these factors cannot be ignored when trading Forex. In addition, the value of a currency to a certain extent also depends on the information component, since even the strongest currency can go down if society sees the prerequisites for its fall.
The entire set of real data that can affect the value of a currency are factors of fundamental analysis. Which are the most important among them?
- The actual economic factors, including the balance of payments deficit, the consumer price index, inflation, unemployment, and so on.
- Political factors. The presidential or parliamentary elections, political instability in the country, the expected change of power – all this destabilizes the situation in the economic sphere, and therefore often plays not in favor of the national currency, while long-term stability, on the contrary, is a guarantee of an increase in its value.
- Informational messages. The media can both raise panic in the market, and eliminate it. Naturally, panic among both traders and the population does not play in favor of any currency, and therefore leads to an increase in its value.
- The cost of raw materials and other products. If the country’s economy depends on a certain product, for example, the Russian economy largely depends on oil (and even if this is no longer the case, then everyone perceives it this way), then the cost of raw materials or products on the international market will also affect the exchange rate.
Thus, in order to carry out fundamental analysis, which must be used in trading on any currency pair, it is important to take into account as many factors as possible and, first of all, pay attention to the most important ones for a particular currency!