Fundamentals of Exchange
Fundamental Analysis | Factors Affecting Foreign Exchange Market | Economic Index | Characteristics of Different Currency Pairs
- What is fundamental analysis?
- Fundamental analysis is the analysis of the core elements that affect an economic entity, such as stocks or foreign exchange. By analyzing the economic indicators, the official policy, social or other factors to predict the price trend of a business.
If the market is regarded as a huge clock, the fundamentals are power driven gears and springs. Everyone can say what time it is, but only know the fundamentals to know the reason behind the clock (or price).
- Fundamentals? Or technical side?
- There seems to be a tendency to classify traders simply into two categories: Fundamentals and technology. In fact, most sensible traders tend to combine the two rather than simply use one side.
Fundamental analysts need to pay attention to the technical signals sent on the chart, the technical analyst also can not ignore the impact of the exchange rate of key economic data, important political decisions or major social events.
- Using the model to forecast the economic situation
- Fundamental analysis is very effective in predicting the economic situation, but it can not help you accurately predict the exchange rate. Analysis of GDP or employment data can help you to understand a country's economic situation and the reasons behind it, but you still need some way to convert it into a specific transaction price.
The bridge between the fundamental data and the trading strategy comes from the trading model. These models use current or historical empirical data to predict future exchange rate developments and translate them into specific trading strategies.
- The prevention of "worry about personal gains and losses"
- Prediction model is a combination of sensibility and reason, because of its many ways, so traders learn to use may be at a loss. It's hard to say when you can confidently confirm your order.
As a result, many traders turn to technical analysis at this time in order to validate their predictions and observe the entry signal from the price pattern.
- First look at the fundamentals of factors
- The fundamentals cover all the elements of a country's economic and monetary movements. From the interest rate, the central bank policy to natural disasters, the fundamentals are a series of unique plans, abnormal behavior and the dynamic combination of unknown events.
Therefore, not every change can cause a country's currency fluctuations. Suggest you start from the grasp the principal contradiction, to grasp the decisive factor, not less. Instead of focusing on all the fundamentals, we recommend that you take the most influential factors in the fundamentals of the portfolio.
Factors affecting foreign exchange market
- Interest rates to promote a country's currency appreciation
- We usually understand the interest rate: it means how much money the loan will need to pay, whether it is a mortgage or the proceeds from investments in bonds and financial markets. Interest rate policy is the core element of the exchange rate, and it is a typical strategy for foreign exchange transactions.
Fundamentally, if a country to raise interest rates, the exchange rate will rise, as interest rates will attract more foreign investors.
High interest rates in the euro area, for example, will prompt us investors to sell dollars and buy euro bonds. Similarly, if the Swiss higher interest rates, then investors will sell the euro bonds, switching to the Swiss Franc bonds, which led to the euro fell, the Swiss Franc appreciation.
- Gold rose, the dollar fell (and vice versa)
- Gold has long been regarded as a hedging tool, investment hedging means and another alternative to the world's reserve currency dollar. This means that the price of gold and the dollar into reverse movement, a lot of foreign exchange investors will use this in a variety of ways in the transaction.
For example, if the price of gold broke through the important price, and is expected to continue to rise. At this point, you may be short of the dollar, buy the euro, hedge against rising gold prices.
- gold rose, gold currency also rose
- is well known, Australia is the world's third largest gold exporter, Canada is the world's third largest gold producer. So once the price of gold, the two countries are expected to appreciate the currency. Therefore, when the value of gold, you can consider to do more than the Australian dollar and Canadian dollar, or sell pounds or yen to invest in the Australian dollar and Canadian dollar.
- oil rose, oil dependent currencies fell
- just as the aviation industry or other oil dependent industries will be affected by rising oil prices, oil dependent countries such as the United States and Japan, the two largest importer of oil will also be suppressed.
If you are convinced that oil prices will continue to rise, you can consider doing more commodity economies such as Australia or Canada's currency, short of oil dependent currencies.
- what are the economic indicators?
- economic indicators are a variety of financial data released regularly by the government and the private sector. Because they can help market observers to monitor the economic trends, it has become the target of almost all financial market participants.
Because there are so many people at the same time to respond to a message, so the economic indicators have a huge potential for trading volume and exchange rate fluctuations. You may feel like you have to get a master's degree in order to accurately analyze all of the data, but in reality you just need to have some simple tips that can be used to develop a trading strategy. Here are some tips for you to use economic indicators:
- develop financial calendar
- it will clearly remind you of the release time of each indicator. You can get this information on the New York Fed's official website, of course, if you are a FOREX.com client, you simply log on to my account on the site, and click on the weekly data tips can be clearly glance.
Check the financial calendar not only to remind you to pay attention to these data, the transaction provides the opportunity to deal with, when the price fluctuations occur when it will help you understand the reasons behind. Imagine the following scenario: on Monday morning, the dollar has fallen for three weeks in a spiral, and traders were forced to sell short positions in the dollar. But on Friday a big data - the U.S. employment data will be released. At this point, if the public is optimistic about the data, traders are expected to withdraw from short positions before Friday, resulting in a brief rebound in the dollar during the week.
- What does data mean for the economy?
- you do not need to pay attention to all the details of each data release, but you have to figure out the key aspects of each aspect of the economy, heavy data. For example, you need to know what data is used to measure the rate of economic growth (GDP, also known as GDP), which is a measure of inflation (producer price index, consumer price index), or what the key indicator is a measure of the employment situation (non target).
- not all economic indicators can affect market trends
- under certain conditions, the market is always concerned about some of the indicators - this concern will change from time to time. For example, suppose that for a country, the price (inflation) the economy is not the most critical issue, while economic growth has a problem. The trader will pay more attention to the country's employment or GDP data, and will be less concerned about inflation data.
- alert data unexpected performance
- market data is often expected to be more important than the data itself. If the results of the data released by economists or experts are surprised and very different, it may lead to market volatility, resulting in potential trading opportunities.
At the same time, when the results of the data exceeded the expected range, traders must avoid premature action, because each new indicator will be released with a correction for the previous data.
- does not rigidly adhere to too many details
- although macro economists tend to understand every aspect of an economic report, as a trader, you need to filter the data in accordance with your goals and develop a sensible strategy.
For example, many investors are very concerned about the title of the employment report, for example, that the new employment population is the key to measure the speed of economic growth. In general, this view may be true, but in the transaction, the number of non-agricultural employment (non farm payrolls data) is the most important data, because it has the greatest impact on the market.
Similarly, the producer price index, in general, should be an important indicator of the change in producer prices, but in fact, when traders are concerned about the producer price index. Because food and energy prices fluctuate, it is necessary to correct the changes in producer prices.
- the two sides of each transaction
- hope that through the above information, you have realized the importance of economic indicators, and learned what indicators have the greatest impact on the market.
Keep in mind that no trader's knowledge is available at all times. You may be familiar with the economic data of the United States, but sometimes some of the data released in Europe or Australia may cause unexpected impact on the currency market. So do your homework before the transaction can help you improve security.
- economic indicators: a barometer of foreign exchange market
- traders can use economic indicators to determine the state of a country's economy (and its currency), but not as much as all the data, as doctors see the main symptoms of a doctor. The following is often the impact of foreign exchange traders start data knowledge:
economic indicators are divided into leading indicators and lagging indicators:
• Leading indicators are those that are likely to change before the trend of the economy. Often used to predict economic change.
• Lagging indicators are the economic factors that have changed since the economy has changed. They are used to confirm the occurrence of changes.
- important economic indicators list
- gross domestic product (GDP)
- refers to the total value of the goods and services produced in all economic activities of a country or a foreign enterprise. GDP reflects the speed of a country's economic growth (or retreat), is regarded as the most macro indicators of economic output and growth.
- industrial production
- measures the real output of manufacturing, mining and utilities, based on quantity rather than quantity. It also measures a country's industrial capacity and its utilization (capacity utilization).
As the manufacturing sector accounts for 1/4 of the major currencies of the national economy, it is necessary to pay attention to the operation of factories and capacity utilization.
- purchasing managers' index (PMI)
- is the National Association of purchasing managers (NAPM), which is now called the Supply Management Association announced the national manufacturing composite index, published once a month. Index covers the new orders, production, supplier delivery times, inventory, prices, employment, import and export orders and other aspects of comprehensive. Manufacturing and non manufacturing index.
- producer price index (PPI)
- is a measure of the change in the price of goods and services purchased by producers of a country's manufacturing, mining, agricultural, and electricity sectors.
Economists are often used to analyze the price changes in different stages of production.
- consumer price index (CPI)
- measures the average price paid by urban consumers (80% of the major currency countries) for a fixed basket of goods and services. It reflects more than 200 varieties of price changes.
It also includes a variety of costs and taxes directly related to a particular commodity and service.
- durable goods orders
- is a domestic manufacturer's order for goods that are not easily lost. Durable goods are goods that can be used or maintained for more than three years.
In times of economic hardship, businesses and individuals often delay the purchase of durable goods, so this indicator is an important yardstick to measure the needs of some customers.
- employment cost index (ECI)
- non farm payrolls measure the employment of more than 255 companies in more than 500 industries across the United States in 50 states. The employment cost index (ECI) measures the number of full-time or part-time salaried employees in business and government agencies across the United states.
- new housing starts
- refers to the number of new homes per month, is an indicator of the degree of activity of a country's construction industry. "Start" means the excavation of the housing foundation.
Property indicators are usually one of the fastest indicators of interest rate changes. Building / licensing if the reaction is large means that interest rates are near the bottom or peak. Analysis, the need to focus on the change rate of the previous month. Published monthly results in mid month.
Characteristics of different currency pairs
- each currency has its own characteristics, this article will introduce the specific characteristics of several major currencies.
Technical analysis in the foreign exchange market is no doubt, however, especially for new traders, so that if technical analysis tools all have the same effect, it will cause the transaction results greatly reduced, may also be misleading that there must be a universal tool, can at any time and effective analysis any currency. However, anyone who has been trading forex experience knows that it is impossible, for example, the dollar / yen (USD/JPY) and the dollar / Swiss Franc (USD/CHF) market is completely different.
In view of this, we have searched a universal technical analysis tools? In fact, if we can get a clear understanding of the main characteristics of different currencies and using different technology, we will have a greater chance to improve the outcome of the transaction, the purpose of this paper is to investigate the characteristics of some major currencies, and put forward the corresponding technical analysis strategy.
- main currency
- , according to the latest statistics from the bank for International Settlements, the euro / dollar (EUR/USD) is the most active currency trading in the foreign exchange market, which alone accounts for 28% of the global daily trading volume. Such as EUR/GBP, EUR/CHF and EUR/JPY, such as the euro cross disk, and further push up the euro trading volume, and these indirect effects are usually contrary to the trend of the dollar. For example, in the plate potential bearish view on the dollar in the market selling dollars will boost the euro has the effect of demand. However, for those smaller trading volume of currency pairs, such as USD/CHF, will fall due to the decline in EUR/CHF, which led to the market to sell EUR/USD.
Compared to other major currencies, this two-way trend will often delay the trend of the euro, is conducive to short-term two-way speculation traders. On the other hand, this also means that EUR/USD often takes long, seemingly no technical direction of the way to test the trend line or key Fibonacci price. That is to say, according to the breakthrough strategy to engage in transactions, will have to give more space: 20 to 30, to determine the effectiveness of technical price breakthrough. Another effective way to determine whether the EUR/USD breakthrough, is to look at the USD/CHF and GBP/USD currency trading volume has exceeded the smaller relative price of technology, such as the recent highs, so EUR/USD is likely to follow up, on the contrary, if the Swiss franc and sterling in the key level of EUR/USD may never hesitate to move forward, breakthrough the trend.
- change your settings
- technology analysis, this means that EUR/USD disk potential shock indicators is very suitable, but traders still must be properly change some parameters, such as the number of increase in response to EUR/USD specific movements back and forth interval. Figure 1 shows the trend of this feature. From this property, less than 30 minutes of short-term indicators may lead to fluctuations in the traders fall into the trap, but the momentum is quite suitable for MACD index used to observe the EUR/USD, especially because it uses multiple moving averages, reduce the error of signal intersection. The short-term momentum deviation trend line must be used to confirm the authenticity of it, and in the event of a large fluctuations, the effectiveness of the DMI system is strong, can be used to observe the direction of the trend of the existence of the traders for momentum indicators readings you must give some discount, but to focus on cross signal DI+/DI-.
- second character
- 's second active currency pair is USD/JPY, which accounts for about 17% of the world's daily trading volume. Traditionally, USD/JPY is the most politically sensitive currency, and the US government has repeatedly used the exchange rate to negotiate with japan. Now Chinese has replaced Japan to become the United States in Asia, the main trade line, but USD/JPY still plays the yuan and other liquidity is not strong currency benchmark, on this point, USD/JPY often in trade or regional geopolitical situation changes, characteristics of a long-term trend trend.
However, the most important feature of USD/JPY is the collective impact of Japanese institutional investors and asset management on short - term and daily trading. In view of Japan's unique peer culture, Japan's asset management industry is often in the foreign exchange market with the advance and retreat, the yen burst in a same amount or technical level, which makes these spaces play a key support or resistance, once the price fall, the amount of single burst stop loss will be poured into, and so the breakthrough can increase. In addition, Japan has the collective investment characteristics of a transaction, they often in certain period will boost the price down to a certain level or at the same time, and the transaction price adjustment to a new level, for example in the price rise, the price of single price increase.
Japanese investment sector is another common strategy, is the use of price correction time, took the opportunity to follow the larger trend of hoarding site, for example, if the current price is 115 USD/JPY and the upward trend in prices of Japanese investment sector will fall to 114.50, such as 114.75, 114.25 and 114 subjective price buying it it is why USD/JPY often causes support or resistance in the integer bit, even if the price does not have any technical status.
- trend line
- on a technical level, previous observations imply that trend line analysis may be one of the most important technical analysis tools for USD/JPY. As the Japanese investment community in the important technical price tends to collective approach, USD/JPY is also less prone to false breakouts. For example, unless the market can absorb large sell orders in a technical resistance, otherwise the technology price is not easy to break, therefore, only when carrying out a larger market trend, this phenomenon will occur, and the effectiveness of the breakthrough will be quite high. Understanding these features, we can see that USD/JPY is very suitable for use stop loss orders to break strategy traders, but also quite effective short-term trend line such as hours or the 15 minute, but investors must therefore maintain a short view of mind, pay attention to the significance of the daily closing price.
In addition, the Japanese investment community also attaches great importance to the structure of yin and Yang candle, so traders are best able to identify a variety of important forms, such as cross, hanging, clamp top / clamp bottom, as shown in figure 2. As for the significant trend reversal or pause, the closing candle at 5 pm EST is a fairly reliable indicator.
So far, about the yen also shows that USD/JPY has reason to maintain a few weeks trend, which means a trader should focus on the trend of the analysis tools, such as moving average, DMI and Parabolic SAR, compared with RSI, MACD or Stochastics shock index, usually is not useful, especially in the daytime the disk potential, even if the shock index shows the trend may be reversed, but because the institutional investment community forces, USD/JPY and follow the shock index inversion, it is more often a phenomenon is horizontal trend, finally return to the original trend. Finally, the analysis of cloud top is another important trend identification system of USD/JPY, which can show the trend and the main inversion.
- other minor currency
- read the previous two most important currency for later, we will now examine the other relatively small volume of transaction currency for USD/CHF and GBP/USD, this type of technical traders with great challenges. Given the status of Switzerland as a neutral country, Switzerland's role as a global investment paradise also makes the Swiss Franc has a pivotal position. According to estimates, about 1/3 of the world's private assets are stored in Switzerland, so the Swiss Franc has become only a "safe haven" currency, even when the world political situation is unstable. Today, the trend of USD/CHF is probably driven by the dollar overall point of view of the market, rather than leading by the fundamentals of Switzerland, the Swiss central bank's main concern is the Swiss Franc relative to the euro, after all the major Swiss trade counterparts is the EU, therefore the fundamentals of Switzerland usually reflect only the cross exchange rate in EUR/CHF.
But USD/CHF's trading volume has been modest, making the currency a hedge fund and other speculative funds to use the market volatility of the profit target. Lower trading volume and higher market volatility, the Swiss Franc has become an important indicator of the dollar. Figure 3 shows that USD/CHF took the lead in breaking down a major daily chart trend line, a day later, EUR/USD and USD/JPY were able to break through the relative level.
In the short-term fluctuations in the Swiss Franc also has a leading effect, but the overall volatility of USD/CHF makes it appear a false breakout phenomenon becomes commonplace, and these false breakouts are often driven by a single stop loss price, so after the breakthrough of support and resistance about 15-25 points back to the original trend interval is often some things. In a strong trend, the direction of the USD/CHF transaction usually has the characteristics of a side down, unlike EUR/USD with the characteristics of the back and forth.
Similarly, GBP / USD (GBP/USD) is deeply affected by the volatility and trading volume is small, and the direction of the trend, it is a huge fluctuations in the present but with CHF is different, at the same time by the British GBP/USD trend and change the fundamentals of the United states.
- remember risk management
- due to the volatility of the pound and the Swiss franc, traders must take a more proactive mode of operation, especially the management of risks, such as the volume of transactions relative to the level of stop loss level. In the technical analysis tools, this two currency often means a false breakout short-term traders must keep special discipline, should not only give a false breakout wave larger space, such as 30-35, stop loss mechanism also must not ignore. In this regard, the trend line graph below 1 hours the analysis may appear many problems for the letter of breakthrough spurious signals so the effectiveness of the proposed use of 4 hours or more daily long-term chart to determine the breakthrough. Once the price range of more than breakthrough error range, followed by a reverse trend will occur would be helpful to the immediate approach traders at preset stop entry orders will reduce the risk of slippage, if want to capture the entire band, you can set up a mobile Trailing Stop in the position of the stop loss orders.
- is expected to pick up a larger amplitude of
- due to the strong volatility of the pound and the Swiss franc, the callback is usually more than 61.8% of the total, but usually in the proportion of stable in the short term traders are likely to have lost the loss of the exit of the 76.4%. The short-term callback surges of more than 30 points, is usually a directional band signals the end of the day, especially in the disc, but if the traders wanted to reverse the transaction, stop it must be placed in a very high or very low prices not far away. Another technical analysis tool that is suitable for sterling and the Swiss franc, which is a volatile currency, is the William%R, but traders must relax the parameters to -10/-90 in response to their greater volatility. Like all other overbought / oversold signal shock indicators, the premise is the price of single traders must have been reversed.
- does not have a versatile tool
- type of foreign exchange transactions must be clear, because different currencies have different characteristics, so the technical analysis mode will be slightly different, for example, although the pound and the euro against the dollar transactions are quite warm, but the exchange rate change mode on the dollar each other is not the same, therefore, according to different characteristics of currency strategy analysis different techniques, traders will have a greater chance of profit in this market.