The price ratio of a particular currency pair is directly influenced by information about the economic indicators of countries, and not necessarily those to which these pairs relate. That is, information about the crisis in Canada can indirectly affect the currency pair dollars. US / Franc, because Canada is a US trade partner, which means a crisis in this country can also affect the US. An experienced broker, and even more so a beginner, cannot always follow, much less understand, international, economic or social news, because for the convenience of trading, a calendar was created as a hint to a broker.
The economic calendar is one of the main elements of fundamental analysis; it contains a list of all dates for the current trading year in which a particular event occurs that affects the rate fluctuations. In other words, here you will see on what day, in which country economic indicators are published, in which country national holidays are expected (which is relevant for a short-term strategy), comparative values of indicators in relation to the previous period.
Understanding the main indicators. The second important component of fundamental analysis. It is logical that all the indicators will simply not have time, because if you are focused on working with a certain currency pair and apply certain methods of technical analysis, then you are clearly aware of which indicators are paramount for you. For example, an indicator of GDP or the inflation rate of a country is essential for long-term strategies, but an industrial production index may affect transactions in more short-term periods.
Types of indicators. Economic indicators can be both major, that is, leading, and lagging. The first type of indicators has a strong influence on expectations, that is, they are the basis for modeling the trend of the behavior of a currency pair. That is, if the interest rate of the country was strongly raised by the Central Bank, then we can expect an inflow of funds into the economy of this country, that is, in fact, the cost of the national currency was raised. Lagging indicators confirm the emerging trend. On the one hand, an increase in the discount rate is positive information, on the other hand, it can be a signal to the collapse of the economy. And a weak indicator, such as the industrial price index, can confirm or refute an uptrend forecast.
Revising data. This component of fundamental analysis does not pay enough attention. Ignoring information on revising past data can lead to self-deception. For example, you receive information that in the reporting period the growth of the indicator was 1%. You are building your strategy with the expectation that an improvement has occurred, however, you lose sight of the fact that the historical data has been adjusted upwards, for example by 3%. From this angle, an increase of 1% is a fall.
Today, in a nutshell, we looked at the main components of fundamental analysis. We hope we have helped you a little, and now your trading will be even more productive. Good luck to you, and follow our new publications!