Fundamental analysis important indexes in Forex market
As we have described, the basis of fundamental analysis is the thought that one can predict the behavior of a market or its parts by individual macroeconomic (fundamental) indicators (factors). Not only is the market influenced by the underlying processes displayed by those indicators, the publishing of updates of the values of these indicators at regular intervals has its influence too.
The first effect on the Forex market happens as a result of some economic processes; then secondarily the market is affected by indicator information published in the mass media. The first effect forms the basis of the market, the world economic background, whereas the secondary influence, i.e. the release of that background indicator reading, leads to long-term variations of rates during trading sessions – and indicators start working as a single factor in the market.
Every indicator for major world economies is often scheduled to be updated at a specific date and time. There are special economic calendars with dates when individual indicators are published and information about the most important events in various countries. There’s no doubt that traders’ interpretations of these indicators may fluctuate, and depending on the interpretation a currency quotation may preserve its current path, break it or amplify it. The result, in general, is dependent on several different factors at once: general market conditions, the neutral assessment of economic conditions in countries affected, the expectations and future predictions of trend in traders’ minds and the values of the indicators themselves.
Factors impressing the currency market can be separated into several reference groups:
Monetary economic index
One of the most important factors. They reflect governmental economic policy. This group consists of:
• Governmental plans for volume of redemption and placement of credits (public debt dynamics) Indicators of investment and trading capital moves enable you to measure the supply and demand of importers and exporters. These indicators contain:
• steadiness on existing accounts
• balance of capital accounts
• balance of payments
• balance of trade Indicators of the inner financial market state of a country
Show how gainful the investment in national currency may be and, consequently, the potential investors’ demand for it in assets with fixed income (deposits, bonds, etc.). This group include:
• discount (interest) rate development of the interbank credit market
• adjustment date and its development
• development of stock market indexes
Brief fundamental indicators
Specify the economic condition of a country; moreover they display the country’s dynamics and possible signs of its weak points.
• country budget – shortage or extra
• Volumes and strength of budgetary funds receipts
• Volumes and strength of national expenses. general consumption (national)
• brief private investments (national)
• export volume
• import volume
• unemployment rate
Display the volume and possible progress directions of consistent sectors of the economy. One can trace internal demand for the national currency and the level of production development and its dynamics. They also display the tendency of common people and companies to spend the national currency. This group contains the following indicators:
• use of production capacities
• industrial production
• industrial orders
• industrial reserves
• goods demand
• retail sales
• credits received by consumers.
• Productivity and labor activity
“On the one hand they characterize the market’s labor power, its dynamics and the level of progress, on the other hand they are indirect indicators of future customer demand and expectation. This group contains:”
• productivity index
• all indicators about employment and unemployment rates
Are the indicators of inflationary pressure on the economy of a country described. They show the potential reduction of a national currency and the credit policy tendencies of a country. This group contains:
• GDP deflator
• Consumer Price Index (CPI)
• Producer Price Index (PPI)
• index of export prices
• import price index
• consumer price index in the energy sector
• price dynamics of barrel of oil
• labor force price index.
are questionnaire indicators mostly, representing the confidence level of investors, consumers and other economic subjects in their future and current affairs. One can indirectly divine the future demand for durable goods and the medium and long-term placements of funds and credits from them. Indicators of this category are leading, that is, they reflect how other market indicators might change in 3-6 months’ time, more seldom for a month or a year, or more. These indicators are:
• business climate index
• consumer optimism index
• indicator of business optimism in the service sector
• Building sector indicators.
Some of building sector indicators are:
• existing home sales
• volume building permits
• volume of housing starts
• general building expenses
You should take into account the following features while analyzing every indicator:
• Unit of measurement, volatility, source data and dynamics of an indicator during the previous periods.
Written by FxErvin