Fundamental analysis forex books review
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These reports' effects are comparable to how earnings reports , SEC filings, and other releases may affect securities. In forex, as in the stock market, any deviation from the norm can cause large price and volume movements. You may recognize some of these economic reports, such as the unemployment numbers, which are well-publicized. Others, like housing stats, receive less coverage.
However, each indicator serves a particular purpose and can be useful. Gross Domestic Product GDP GDP is considered the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator , most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report.
Significant revisions between these reports can cause considerable volatility. The GDP is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth. Retail Sales The retail-sales report measures the total receipts of all retail stores in a given country. This measurement is derived from a diverse sample of retail stores throughout a nation.
The report is particularly useful as a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales can cause significant volatility.
The retail sales report can be compared to the sales activity of a publicly-traded company. Industrial Production This report shows a change in the production of factories, mines, and utilities within a nation. It also reports their " capacity utilization ," the degree to which each factory's capacity is being used. It is ideal for a nation to see a production increase while being at its maximum or near-maximum capacity utilization. Traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utility industry, and in turn, the trading of and demand for energy is heavily affected by changes in weather.
Significant revisions between reports can be caused by weather changes, which in turn can cause volatility in the nation's currency. This report, when compared to a nation's exports, can be used to see if a country is making or losing money on its products and services. Be careful, however, to monitor the exports — it is a popular focus with many traders because the prices of exports often change relative to a currency's strength or weakness.
And don't forget the many privately issued reports, the most famous of which is the Michigan Consumer Confidence Survey. All of these provide a valuable resource to traders if used properly. Using Economic Indicators Since economic indicators gauge a country's economic state, changes in the conditions reported will therefore directly affect the price and volume of a country's currency.
It is important to keep in mind, however, that the indicators discussed above are not the only things that affect a currency's price. Fundamental analysis is a way of looking at the forex market by analyzing economic, social, and political forces that may affect currency prices. If you think about it, this makes a whole lot of sense! Just like in your Economics class, it is supply and demand that determines price, or in our case, the currency exchange rate. Using supply and demand as an indicator of where price could be headed is easy.
The hard part is analyzing all of the factors that affect supply and demand. As the economy gets better, raising interest rates may be needed to control growth and inflation. Higher interest rates make dollar-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some U. This increases demand for the currency.
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