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Any market can be analyzed. FOREX market can be analyzed with the help of technical and fundamental analysis. Each of them has its special features and a sphere of influence. Let us see the difference between them and ways of their implementation.
Fundamental analysis
Currency exchange rates are influenced by factors indicating a state of the economy in a country:
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Economical growth indicators (national produce, commercial production etc)
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Trading balance condition, level of dependency on outer sources of raw materials
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Money supply growth at the home market
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Level of inflation and inflationary expectations
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Interest rate level
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Paying capacity of a country and confidence in a national currency at the world market
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Speculative transactions at the currency exchange market
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Level of development of other sectors of the world financial market, for example equity market that rivals currency market.
Money in another country
Interest rates differential:
JPI - 0,5% GBP - 6.00%
In a form of security:
T-bills (treasury security)
USA - Bonds UK - Gilts
Germany - Bunds Japan - JGB
USA – negative budgeted deficit
Japan - positive budgeted deficit
At the same time Japan deposits major funds into USA bonds about 60% of market volume.
Central bank of Russia also deposits about 80% of its reserve funds into USA bonds.
Stock indexes
DJIA -USA Nikkey - 225 - Japan
FTSE - 100 - UK CAC - 40 - France
DAX - 30 - Germany Hang Seng - HK
Doe-Jones Index (DJI)
There are 4 Doe-Jones Indexes.
Central banks
Central Banks watch the inflation level in a country and the national currency exchange rate and try to regulate them with a help of three major interest rates:
Discount rate is an interest rate the Central Bank credits commercial banks at.
When interest rates decreases the business activity increases and so does the inflation. The decrease of the interest rates leads to reduction of national currency’s price. The increase of the interest rates leads to business activity and inflation decrease, but also the national currency price rise. In present situation the effective method of influencing the national currency’s exchange rate is still a purchase and sell of the foreign currency by the Central Banks called currency intervention.
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