8 FUNDAMENTAL ANALYSIS
fundamental analysis 1
Fundamental analysis is to analyze the forces that influence the economy, such as production capacity, consumer confidence, employment etc. Fundamental analysis can help to find causality between price movements, and also (help) predicting future price movements.
On the forex market is raging a perpetual war of all against all. Everyone fights for himself, there is no moral right, and hardly no ethics laws. The sky is the capitalist and the communist hell.
Anyone with half a brain and a lot of motivation can rich fighting on the forex market. A few hundred dollars, much study, much practice, a lot of discipline and you have all the basic ingredients for the 'road to the top'. Easy rich is certainly not, but the forex market has no glass ceiling. Lack of qualifications / training wrong / too young / too old / too dark / too bright / too whatever, it does not matter. If it is to be somewhere, it is always yourself.
To be successful in fighting this eternal battlefield you must know who your enemies are and how / what they think. All enemies together determine which is to a large extent the course of the war.
The players
There are three major players in the currency market:
1) governments
2) multinationals
3) * large traders (including the obscenely large hedge funds) and small
Of these three players is only the third pro-active, ie it tries to predict which way the price goes.
Governments are moving mainly reactive in the foreign exchange market via their central (national) banks, for example to prevent the price of their currency too far increases / decreases relative to the others. The role of governments in recent years, however, continually declined, because it is increasingly difficult to really influence on the growing foreign exchange market. However, it is still a government trying to influence the market
50 euro free markets
A good example is the Japanese Central Bank in 2003 in a few months more than $ 300 billion spent to ensure that the yen was cheap compared to the dollar. This is to ensure that Japanese exports could remain competitive in world markets.
Also most multinationals play a reactive role (the hedge funds excluded because they occurred for profit). Companies like Shell, Philips, Microsoft etc have many activities abroad. To the foreign fee income to shield 'hedging' them using foreign currency. They buy for example Euros and sell simultaneously dollars (position: Long on EUR / USD) for their product sales in the U.S. to hedge against exchange loss of the dollar (they have since a position 'in the other direction' in the EURO). They also affect the rates by more or less to invest, sell etc, in other words by the economic activities they develop.
Why economic news is important
Economic indicators give many hints about how a country is economically capable. It also provides insight into the needs of domestic and foreign companies.
The interest rate on a currency reduced by the Central Bank? Then it becomes cheaper to borrow money and therefore cheaper to invest. The money market is thus wider, which in turn means that the price of the currency usually conscious will fall against other currencies.
Governments and large companies 'make' the (economic) news. This news has real value and speculative value. The actual value is determined by the reaction of companies and governments, the speculative value by the traders.
Large and small traders react on the news because:
a) It says something about how multinational companies (and smaller companies) have recently had surgery and how the coming period is likely to operate. (More / less economic activities in one country develop and more / less hedging in the forex market)
Simple example is the GNP of a country significantly increased in comparison with other countries? Then there is much need for the currency of that country, every company wants to be like investing in a country where things are going well. The value of the currency against other currencies will probably go up.
b) It says something about the likely future behavior of the government / authorities where the news is true.
Simple example: Is the inflation in the Eurozone rose to 5%? Chances are that the ECB will raise interest rates, so the money market decline, and inflation is (hopefully) decreases. The value of the currency will (probably) increase.
c) Other traders big and small here then ALSO respond. This is perhaps the main reason for the reaction of traders to news: the expectation that the other traders here will react. It is a war of all against all, and if all the others decide to buy euros and sell dollars then you had better do well .....
Virtually every successful trader also takes over the news closely. To a very successful trader to quote, when asked what he thought important, fundamental or technical analysis: "This is like asking a doctor whether he would prefer treating a patient with a chart with diagnostics or monitoring his condition. You need both. "
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Forex is simple follow the trend and you will rich.
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