In the practice of currency dealing, there are two fundamental approaches to the study of the market in order to determine the priority direction of its movement – technical (graphical, indicator) analysis and analysis of fundamental economic factors.
The idea of technical analysis is that in order to determine the trend of price movement in the market, one should observe the price movement using special methods (analysis of graphical models, analysis of mathematical indicators), estimate the probability of its dynamics in one direction or another. In the aspect of technical analysis, trying to look for the reasons for the observed change in the exchange rate is impractical.
“Technical Approach” is most popular for analyzing prices for relatively short periods – from weekly charts to a minute time frame. It should be noted that the “fundamental approach” to analyzing the market at such short time intervals has no practical meaning (a kind of exception is “trading by news”), since information essential for fundamental analysis becomes public knowledge, as a rule, not more than one times a week.
The study of the fundamental economic factors and circumstances most justifies itself, if the task is to identify trends of a medium-term and long-term nature in Forex. For this kind of market forecasts, it is necessary to identify and analyze basic relationships (causes and effects) between global changes in the foreign exchange market and the economic preconditions that cause this dynamics. Price fluctuations at time intervals of less than one day, from the point of view of deep fundamental analysis, are nothing more than “market movement hindrances” that should be “filtered out”.
The fundamental postulate of the “fundamental approach” to the analysis of the foreign exchange market can be formulated as follows: basic Forex trends are predetermined by the interaction of supply and demand in the currency market, which, in turn, are complexly dependent on various economic factors and circumstances. p >
A fairly conventional grouping of economic indicators that “fundamentally” affect the Forex market situation may look like this:
- Indicators of movement of investment and trading capital
- Financial asset market indicators
- Generalized Macroeconomic Indicators
- Indicators of industrial and commercial development
- Employment and labor market indicators
- Indicators of price movement (inflation)
- Indicators of the state’s monetary and credit policy
- Real Estate Market Indicators (construction)