Speculating on Forex, it is imperative to analyze the currency pairs and taking values against each other, the inference of course will be decisive for future decision making.
There are two main ways to analyze financial markets:
Fundamental analysis. Based on news or events caused by, events and economic performance movement. The technical analysis. Use historical prices to predict future moves, with the help mainly the use and study of graphic elements. Get more information on forex broker and technical analysis with IFCM cfd broker market.
Now with regard to market analysis and predictions of the course they will take on these trends, some market operators even tend to exclude one another, or face base its decisions on a particular type of analysis.
What it is defined by Fundamental Analysis (Fundamental analysis)?
Fundamental analysis within the equity research seeks to know and evaluate the true value of title or action, called fundamental value. This value is used as an estimate of its value as a commercial utility, which in turn is supposed to be an indicator of future performance is expected from the title. This type of analysis was introduced by Benjamin Graham and David Dodd, Security Analysis in 1934.
The fundamental hypothesis assumes that when the market price is less than essential or fundamental value, action or title is undervalued and its price will rise in the future when the market is properly set.
Therefore, a fundamental analyst should be able to calculate the essential value of the title or action, and what is the current price. The sign of the difference gives an idea whether the rising trend is positive or negative. So the main problem is the task of estimating what should be the intrinsic value of the title or action, and consequently what the market “should” do. Another major problem is to predict when it will produce the predicted movements. Overall, the analysis applies to long – term investments, hoping that the market reflects the expected value.
Unlike technical analysis, analysis tools, given the objective of obtaining the “true” value of a security, are all elements that can affect the value.
Periodic financial statements: calculating ratios.
Business valuation techniques.
Economic Forecasts: environmental analysis.
Economic information in general.
Any additional information that affects the value of a security.
The Forex Market reflects the expectations that investors have on the evolution of currency prices. Macroeconomic factors, the news about a currency, or events occurring in the country of that currency are crucial to the evolution of its price. Investors are constantly looking for clues in the macroeconomic data to predict the behavior of currencies and ahead of the market. However, many times, when they leave, the news is already “discounted” by the market and do not produce the desired effect. Hence the popular advice: “Buy the rumor and sell the news”.
Governments published at intervals established the evolution of the main macroeconomic variables. Investors in the Forex Market anticipate these with their own estimates, and prices of currencies incorporate these expectations. When data that does not match the market consensus is published, sudden movements that may cause strong gains or heavy loss all depends on which side of the prediction are you in at the time they occur.
Main indicators on fundamental analysis in forex:
1. Growing Economy
2. Price evolution: Inflation
- Balance of Payments
5. Capital Flow