In foreign exchange transactions, market analysis can be divided into foreign exchange technical analysis and foreign exchange fundamental analysis. Fundamental analysis of foreign exchange is to study the essential factors that can affect the overall economy of a country. After analyzing factors such as economic indicators, government policies, and social development, investors can effectively judge the movement of foreign exchange market prices and market trends to make decisions Trading plan to improve the profitability of trading.
So, what are the important fundamental news for foreign exchange?
- Political factors
Many changes in the political situation will have an impact on the exchange rate. The more stable the situation, the more stable the exchange rate will be. When the situation is unstable, the exchange rate will go down. Paying more attention to political information will help foreign exchange investors to operate accordingly.
- Economic status
The most important and direct factor affecting currency exchange rates is the economic conditions of the currency’s own country. For example, the more important and common economic factors are: interest rate level, inflation, economic growth level, etc.
- Psychological expectations
To a large extent, the direction of the exchange rate is also affected by the psychological expectations of investors. For example, for the depreciation or appreciation of many currencies, the market usually forms a certain trend. If it can truly fit, the exchange rate fluctuations will also be affected within a certain period of time, and there may be major market changes.
The exchange rate of foreign exchange transactions will also be affected by some major emergencies, which will bring about relatively large and long-lasting changes, such as the Swiss franc black swan event.
How to conduct foreign exchange fundamental analysis
Fundamental analysis of foreign exchange means to determine the operating strategy by analyzing the influence of the country’s economy and politics on the country’s currency supply relationship. In short, a country’s economic development is good, the political environment is stable, and the currency will be relatively strong. Conversely, when the economy is in recession and the political environment is unstable, the currency will be relatively weak.
The fundamentals of current international economic discussions include the balance of payments hypothesis, the purchase parity hypothesis, the interest rate parity hypothesis, and the capital market hypothesis. Since each hypothesis has a different theory of believers, there is currently no decisive theory to explain all economic theories. Instead, the current behavioral economics has been well developed.
Regardless of the theory, the current fundamental analysts are committed to integrating the dissemination of news around the world, the announcement of news and various macro indicators, including economic growth, inflation, unemployment, and purchasing managers’ index.
Foreign exchange technical analysis mainly studies market behavior, while foreign exchange market fundamental analysis focuses on the supply and demand relationships that cause prices to rise, fall, or stay flat. Fundamental analysts need to consider all relevant factors that affect the price in order to determine the intrinsic value of a currency. The so-called intrinsic value is the actual value of a currency determined according to the law of supply and demand. It is the basic concept of the fundamental analysis school. If the intrinsic value of a currency is higher than the market price, it is said that the price is high, it should be sold. If the market price is lower than its intrinsic value, it is said that the price is low, and it should be bought.
Fundamental analysis generally contains a lot of data and charts, and the data in a good report is not only comprehensive, but also quite accurate. Through the analysis of a large amount of data and charts, a conclusion will be drawn: the market is more likely to rise or fall in the future, that is, they use a large amount of data and chart analysis to predict the future of the market.
The important significance of fundamental judgment is that the market will not easily undergo fundamental changes. Once a certain trend is formed in the market, the trend will not be easily ended. It will run for a long time, which means that the nature of fundamentals has Relative stability, it will not change day by day like the market price.
Fundamental analysis allows us to predict long-term development, and also in the short term of major economic announcements. Fundamental analysis allows investors to better understand and understand the current market conditions, so that we can better keep up with the market. The pace of operation, make a trading strategy that adapts to the market, and adjust our trading plan according to the new situation.