Summary: Fundamental Analysis

Ok, now that you have read the lesson material please make sure you completely understand and/or do the following:

Even when we forex traders don’t trade fundamental announcements, we always get questioned about economic aspects, so we always need to be prepared to answer those questions accurately. But this is not the main reason why we should study fundamentals, the main reason is to really understand what kind of indicators there are and the effect that each one of them could have on any currency pair we are involved with, as well as other relationships with commodities such as gold and oil.

This lesson is important for novice and advanced students alike with no prior economic studies.

Make sure you understand the following:

What each economic indicator measures and the effect on currency pairs
Difference between political issues and crisis as well as what could be the impact in the currency market of social factors and statements of important people
These days the oil price has become very important to currency traders so it is important to understand the effects of oil price changes in the currency market.
Risks involved while trading during important news announcements
Techniques used by fundamental traders (or news and event traders).

Here are the Brain Feeders:

Brain Feeder 1

We were asked about what is a good or/and a bad figure or number in fundamental releases?

What we mean by “good” or “bad” number is how close or apart is the actual figure from the consensus or expected figure. For instance, if we expect the US economy to have created 50,000 jobs in November and the actual figure is 45,000, it is a bad number because it was worst than expected although 45,000 is still a positive numbers and it means the economy has created that amount of new jobs. On the other side if the actual figure is 60,000 then it is a good number because it was better than expected.

Brain Feeder 2

In the second Brain Feeder we were asked how is the European HCPI different from what other countries use as a measurement of inflation (like the US uses CPI)?

Yeah I know, this Brain Feeder has nothing to do with thinking, its more like a research thing, anyway here is the answer:

According to WikiPedia the HCPI differs from the CPI in two aspects:

The HCPI incorporates rural consumers (as well as urban consumers) while the CPI focuses only on urban consumers.
The HCPI excludes “owner-occupied” from its scope while the CPI incorporates it.
Which one is better? Who knows…

Brain Feeder 3

Is there a good Inflation number for all countries?

No, the effect of this announcement varies depending on the given circumstances. Most of the time: when a country suffers from high inflation, a high CPI number could have a negative impact on its currency value (this is the case for most developed countries). On the other hand, when a country suffers from low inflation or deflation (such as Japan), a low CPI number could have a negative impact on its currency value. Extreme values are no good for any economy; it is more likely that central banks try to find equilibrium in between.

Brain Feeder 4

We were asked what do we think could happen to the USD if oil producer countries price their oil barrels in Euros instead of US dollars?

Excellent! You got this one right! The USD will plummet! That’s the only answer and of course the demand for Euros will increase.

Good luck!