There two analysis to analyse the movement of FOREX and INDEX which are fundamental analysis and technical analysis.
Fundamental Analysis
The most influential factors on analyzing the market based on fundamental are economic and political factor. The economic indicators have influence towards the movement of currencies such as growth data (GDP), unemployment, inflation rate, trade balance, interest rate and others. Beside economic, political factors can also cause fluctuation on currency, in this case is political stabilization of the nation.
The economic indicator that could effects the markets are:
- Merchandise Trade Balance
Trade Balance is the difference between the values of the goods and services that a country exports and the value of the goods and services that it imports. If a countryˇ¦s exports exceed its imports, it has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country has a trade deficit and its trade balance is said to be negative.
The current account balance is defined by the sum of the value of imports of goods and services plus net returns on investments abroad, minus the value of exports of goods and services, where all these elements are measured in the domestic currency.
Balance of Payments is a measure of the payments that flow from one country to another. It is determined by a country's exports and imports of goods, services, and financial capital, as well financial transfers.
Officially known as the Survey on Current Economic Conditions, the Beige Book, is published eight times per year by a Federal Reserve Bank, containing anecdotal information on current economic and business conditions in its District through reports from Bank and Branch directors, and interviews with key business contacts, economists, market experts, and other sources. The Beige Book highlights the activity information by District and sector.
The industrial production index measures the physical volume of output of the nation's manufacturing sector including factories, mines, and utilities. From a fundamental point of view, it is an important economic indicator that reflects the strength of the economy and by extrapolation, the strength of a specific currency. Therefore, foreign exchange traders use this economic indicator as a potential trading signal.
Measures the percentage monthly change in total receipts of retail stores, and includes both durable and non-durable goods. It is the first real indication of the strength of consumer expenditure.
In the USA, the employment report, also known as the labor report, is regarded as the most important among all economic indicators. Usually released on the first Friday of the month, the report provides the first comprehensive look at the economy, covering nine economic categories. There are the 3 main components of the report:
- Payroll Employment: Measures the change in number of workers in a given month. It is important to compare this figure to a monthly moving average (6 or 9 months) so as to capture a true perspective of the trend in labor market strength.
- Unemployment Rate: The percentage of the civilian labor force actively looking for employment but unable to find jobs. Although it is a highly proclaimed figure (due to simplicity of the number and its political implications ), the unemployment rate gets relatively less importance in the markets because it is known to be a lagging indicator--It usually falls behind economic turns.
- Average Hourly Earnings Growth: The growth rate between one monthˇ¦s average hourly rate and anotherˇ¦s sheds light on wage growth and, hence, assesses the potential of wage-push inflation.
Traders watch the development of inflation closely because the method of choice for fighting is raising the interest rates and higher interest rates tend to support the local currency. To measure inflation traders use economic tools considered below.
1. PPI consists of main economic sector such as manufacturing, mining and agriculture.
2. CPI reflects the average changes in retail prices for a fixed market basket of goods and services.
- Purchasing Manager Index (PMI)
The Index is widely used by industrialized economies to assess business confidence. Germany, Japan and the UK use PMI surveys for both manufacturing and services industries. In the US this term known as ISM (Institute Supply of Management)
IFO is a Germanyˇ¦s leading survey of business conditions. Released monthly by the Institute for Economic Research which is one of the largest economic think tanks in Germany, the IFO Business Climate Index is a widely followed leading indicator of economic activity known for its track record in calling economic turns in German economic growth.
GDP measures the market value of goods and services produced in a country, regardless of the nationality of the firm owning these resources. There are four major components of the GDP are: consumption, investment, government purchases, and net exports. The headline figure is the quarterly release of the percentage growth over the previous quarter (q/q) or year (y/y).
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