Fundamental analysis shows how equity prices on the market reflect demand and offer, which in turn depend on fundamental economic factors. Fundamental analysis estimates growth perspectives of the equity’s demand and growth. It allows the investor not to take into account short-time oscillations, also known as market noise. In other words, fundamental analysis shows which way the price trend goes, while technical analysis shows when to enter the market, on which interval and in which direction to trade.
This type of analysis shows the future movements of the national markets basing upon economic news in each country. It estimates the countries’ economic conditions, and predicts how the economic news will influence the prices of their currencies, stocks, or goods exported to other countries. Economic news has huge impact on the movements of equity prices on the market.
Since USD takes part in 80%-90% of all the transactions on the currency market, let’s consider the market of the US national currency as an example. The American currency is a universal mean of payment in the international business and a possible refuge in case of financial or political crises in other countries. The United States Dollar is also an object of international investments because of the huge number of the blue chips — government stocks. Dollar is a generally recognized base currency for the quotes of other currencies, which makes the USA one of the major economies with huge influence on the global markets; the majority of traders around the world are following the American markets. When the American trading session opens, a surge of volatility can be observed on every financial market.
If, for instance, some bad statistics have been published in the USA, we can suppose that many traders will decide to get rid of dollars – they will sell the USA’s national currency. In other words, the offer will increase, which in turn will result in lower USD exchange rates. Therefore we can make predictions concerning the exchange rate charts.
Another example: if a crisis is announced in some rich Arabic country, the oil prices will probably soar because of fears that oil shipments from that region are going to be cut due to unfavorable events. Demand and offer are the basic economic factors; if the equity demand increases (or if offer increases) the price will grow, and vice versa.
Every country publishes the monthly set of the most important statistics, such as its gross domestic product (GDP), the levels of employment/unemployment, decisions concerning bank interests and the protocol from the latest Central Bank meeting. There are other factors that influence price movements: influential economists’ speeches, business activity reviews made by international financial organizations, consumer price and consumer sentiment indices. These publications often have powerful influence on the currencies that can be found in the Economic Calendar.
Every day lots of economic statistics are published concerning the countries, which have considerable influence on the international currency market; at the same time, official figures often give speeches. The Forex market traders should be in the know of all this information – moreover, it is best if they get it in some convenient form. That is why the Economic Calendar was developed.
The Economic Calendar is a kind of chronological account of the important economic events, which are classified according to their levels of importance. All the fundamental factors are published in each country on a regular basis and influence the prices of their official currencies. This is easy to prove – just compare the graphs in any trading platform with the moments when these data were published. The Economic Calendar is a powerful tool for any trader, regardless of their trading experience and excellence – especially for those who specialize in news trading.
The first thing that has to be done is setting your local time in the «Current Time» field. After that you can start working. The Calendar is divided into a number of columns. The most important ones for our purposes are the following 4: «Time», «Currency», «Importance», and «Fact». The «Time» column shows exact time when the news was published. We never begin trades before the news is actually published, only after. The «Currency» column shows which currency will be influenced by this news. Pay attention: the news will influence one currency, while we are trading currency pairs. The rules are simple: if the news is published concerning the first currency in the pair, there is direct correlation. If the news is published concerning the second currency, the correlation is inverse. If we are trading EUR/USD, EUR is the first currency in the pair, and USD is the second one. The «Importance» column shows us how powerful the news is. If the news has 2 or 3 heads, we can trade on it; we don’t trade if it has just 1 head. The «Fact» column shows up exactly when the news is published. It can be shown in one of the three colors: black – ‘as was predicted’, so we don’t know how the market will react, and we DON’T TRADE; red – the news is worse than the forecasts were, so the currency under which it is published will grow weaker; if the news is shown in green, it means the news is better than the forecasts were, so the corresponding currency will get stronger.
* this is a classic situation; exceptions can always happen.
Here you can find examples of trades open with the use of the Economic Calendar.