Fundamental analysis involves assessing the current economic state of a company (for stock trading) or a country (for currency trading) through statistical data. In essence, when a country’s economic indicators and a company’s earnings grow, they become more appealing to investors, driving up their respective prices. This reveals a consistent pattern: economic growth in a country leads to currency rate increases, while a company’s rising earnings boost its stock prices. Conversely, any downturn triggers the opposite effect. Beyond economic factors, political influences – either positive or negative – also play a pivotal role. For instance, if a radical government assumes power and engages in international conflicts, it erodes confidence in the country and elevates risks for international corporations.
This chain reaction prompts these corporations to curtail their projects, resulting in economic contraction, reduced tax revenues for the government, and increased unemployment. These developments incite investor panic, leading them to invest in foreign currencies to safeguard their assets. These actions contribute to a decrease in the national currency’s value. Moreover, the government’s aggressive policies impact domestic companies collaborating with foreign entities, causing their stock prices to decline. By understanding this logic, one can anticipate subsequent price movements in global markets.
Assessing a country’s current economic condition hinges on macroeconomic indicators across various sectors:
- Public Sector: Budget, interstate payment balance, and GDP.
- Financial Sector: Central Bank’s base rate and financial volumes.
- Industry: Production output and labor efficiency.
- Employment: Unemployment rates, job numbers, and wages.
- Inflation.
- Trade: Retail and wholesale sales.
- Efficiency and Consumer Confidence.
These indices are computed by State Statistics Services and shared on official websites. Furthermore, numerous information agencies and financial firms compile this data into an economic calendar, presenting it in an easily accessible format for investors. This calendar highlights rates to be published on significant dates for investors and traders, along with average projected rates from analytical agencies.
The economic calendar plays a vital role by aligning with a trading principle: “Buy the rumor, sell the fact.” Market participants adhere to this guideline. Essentially, when the market anticipates favorable rates for a country and a positive economic impact, traders seek to purchase its currency at a lower price prior to confirmation of these expectations. This rule stems from the basic profit formula for traders: “Buy low and sell high.” As prices have the potential to continue rising, traders endeavor to secure lower entry points. The same principle applies to news regarding a country’s GDP growth, where analysts await upward movement; a growing GDP signifies a flourishing economy, making investments in it profitable.
This principle extends to trading EUR/USD before news publication, allowing traders to leverage expectations and generate profits. While awaiting news release, traders can capitalize on this strategy. Whether or not analyst predictions align with actual outcomes, the opportunity for profit arises before official indices are unveiled.
Through the integration of fundamental and technical analyses, we can aptly forecast price movements within a 1-2 hour timeframe between identified key levels. When operating on a short-term basis, multiple trades can be executed within a few hours, yielding substantial gains.