Fundamental analysis is a method of forecasting future price movements of a financial instrument based on economic, political, environmental and other relevant factors, as well as data that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. One major advantage of technical analysis is that experienced analysis can follow many markets and market instruments, whereas the fundamental analysis focuses on what ought to happen in a market. Among the factors considered are; supply and demand; seasonal cycles; weather; govemment policy.
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The fundamental analyst studies the causes of market movements, while the technical analyst studies the effect. Fundamental analysis is a macro, or strategic, assessment of where a currency should be traded, based on any criteria but the movement of the currency's price itself. These criteria often include the economic conditions of the country that the currency represents, monetary policy, and other ''fundamental'' elements.
Many profitable trades are made moments prior to, or shortly after, major economic announcements.
Leading economic indicators
The following is a list of economic indicators used in the USA. Obviosly, there are many more, as well as those of other leading economies (such as Germanyi the UK, Japan, etc.). In general,it is not only the numerical value of an indicator that is important, but also the market's anticipation and prediction of the forecast, and the impact of the relation between anticipated and actual figures on the market.
Such macro indicators are followed by the vast majority of traders worlwide. The quality of the published data can differ over time. The value of the indicator data is considered greater if it presents new information, or is instrumental to drawing conclusions which could not be drawn under other reports or data. Furthermore, an indicator is highly valuable if one may use it to better forecast future trends.
Note that in the USA most indicators are published on certain weekdays, rather than on a particular monthly date (e.g. the second Wednesday in each month, as opposed to the 14th of each month, etc.).
Each indicator is marked as High (H), Medium (M), or Low (L), according to the importance commonly attributed to it.
CCI - Consumer Confidence Index
The Conference Board; last Tuesday of each month, 10:00am EST, covers current month's data
The CCI is a survey based on a sample of 5,000 U.S. household is considered one of the most accurate indicators of the effectiveness of govemment policy. The CPI is a basket of consumer goods (and services) tracked from month to month (excluding taxes). The CPI is one of the most followed economic indicators and considered to be a very big market mover. A rising CPI indicates inflation. The Core-CPI (CPI, excluding food and energy, expense items which are subject to seasonal fluctuations) gives a more stringent measure of general prices.
Department of Labor; the first Friday of each month, 8:30am EST, covers previous month data
The collection of the data is gathered through a survey among 375,000 business and 60,000 households. The report reviews: the number of new work places created or cancelled in the economy, average wages per hour and the average lenght of the work week. The report is considered as one of the most important economic publications, both for the fact that it discloses new up-to-date information and due to the fact that, together with NFP, it gives a good picture of the total state of the economy. The report also breaks out data by sector (e.g. manufacturing, services, building, mining, public, etc.)
Employment Situation Report
Bureau of Labor and Statistics; the first Friday of each month, 8:30am EST, covers previous month data
The Employment Situation Report is a monthly indicator which contains two major parts. One parts is the unemployment rate and the charge in the unemployment rate. The second part of the report indicates things like average weekly hours worked and average hourly earnings. This data is important for determining the tightness of the labor market, which is a major determinant of inflation. The Bureau of Labor surveys over 250regions across the United States and covers almost every major industry. This indicator is certainly one of the most watched indicators and almost always moves markets. Investors value the fact that information in the Employment report is very timely as it is less than a week old. The report provides one of the best snapshots of the health of the economy.
GDP - Gross Domestic Product
BEA (Bureau of Economic Analysis); last day of the quarter, 8:30am EST, covers previous quarter data.
GDP is a gross measure of market activity. It represents the monetary value of all the goods and services produced by an economy over a specified period. This includes consumption, govemment purchases, investment, and the trade balance. The GDP is perhaps the greatest indicators of the economic helath of a country. It is usually measured on a yearly basis, but quarterly stats are also released.
The Commerse Department release an advance report on the last day of each quarter. Within a month it follows up with the preliminary report and then the final report is released yet a month later. GDP indicates the pace at which a country's economy is growing (or shring).
NFP-Changes in non-farm payrolls
Department of Labor; the first friday of each month, 8:30am EST, covers previous month data
The data intended to represent changes in the total number of paid U.S. workers of any business, excluding the following:
-general govemment employees;
-private household employees;
-employees of nonprofit organizations that provide assistance to individuals;
The total non- farm payroll accounts for approximately 80% of the workers responsible for the entire gross domestic product of the United States. The report is used to assist govemment policy-makers and economists in determining the current state of the economy and predicting future levels of economic activity. It is a very big market mover, due largely to high fluctuations in the forecasting.
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