My name is Nadia Fleischer and I work for Marketiva Corporation (http://www. marketiva.com/). Marketiva is a foreign exchange (forex) dealer where people can start trading with as little as $1 and learn how to successfully participate in the largest financial market in the world.
In the previous e-mail ("Learn Trading: Marketiva Charting Basics") we covered the most basic issues of the Technical Analysis. In this e-mail, we will cover the main part of the other type of analysis: Fundamental Analysis.
Fundamental Analysis is based on the study of factors external to the trading markets, which affect the supply and demand on a particular market. It is opposed to the technical analysis as it focuses, not on currency rates, but on factors like government policies, domestic and foreign political and economic events and changing trade prospects. Thus, the main sources of information for fundamental analysis are news and economic indicators.
NEWS
Latest news is available in the Streamster on the "Latest News" tab and the news articles are collected from different sources on the Internet. By clicking on "Categories" button, it is possible to choose only specific category of news, making it easier for you to focus on topics you find the most useful in trading.
ALERTS
The "Alerts" tab in the Streamster announces market events five minutes before they occur. Market events are divided in two groups: events with high and normal priority. Streamster also has a feature (you can set it in the "Settings" menu, "Pronounce high-priority news, alerts and signals") that allows you to hear alerts narrated aloud.
ECONOMIC INDICATORS
Economic (business) indicators allow analysis of current and predicted economic performances. Economic indicators include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index (a measure for inflation), industrial production, bankruptcies, Gross Domestic Product, retail sales, stock market prices, money supply changes, etc. The most important ones will be discussed below.
GDP (Gross Domestic Product)
The Gross Domestic Product (GDP) is the sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country's economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth.
The GDP report contains information that gives an image of the overall economy and also tells investors about important trends within the big picture, so it needs to be tracked closely.
The most common approach to measuring and understanding GDP is the expenditure method: GDP = consumption + investment + exports - imports
The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totaling roughly two thirds of GDP.
GDP reports are issued quarterly, thus they affect market in a long period rather than having an immediate effect. The reports are broken down into three announcements: advance, preliminary, and final numbers. After the final revision, GDP is not revised again until the annual benchmark revisions each July. These revisions can be quite large and usually affect the past five years of data.
Industrial Production
Industrial Production is a fixed-weighted measure of change in production of the nation's factories, mines and utilities as well as a measure of their industrial capacity, production and of how many available resources among factories, utilities and mines are being used (commonly known as capacity utilization). Since the manufacturing sector accounts for approximately one-quarter of the economy in developed countries, this report has a big influence on market behavior.
Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather. Severe hot or cold spells can boost production as increased heating / cooling needs drive utility production up.
Measure of capacity utilization is also provided in this report. Capacity is very difficult to measure, and it is essentially assumed that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. Historically, the 85% mark is seen as a key barrier over which inflationary pressures are generated. Utilization rate getting too high (above 85%) can lead to inflationary bottlenecks in production. For example, The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures, in that way greatly influencing Forex market.
The Employment Report
In economics, unemployed person is a person who is able and willing to work at prevailing wage rate yet is unable to find a paying job. The unemployment rate is the number of unemployed workers divided by the total civilian labor force (people who are able to work). There are several different methods for measuring the number of unemployed workers. Each method has its own biases and the different systems make comparing unemployment statistics between countries, especially those with different systems, difficult.
The employment report is consisted of actually two separate reports which are the results of two separate surveys: the household survey (produces the unemployment rate) and the establishment survey (produces the non-farm payrolls, average workweek, and average hourly earnings figures, etc.).
Both surveys cover the payroll period which includes the 12th of each month. The employment data also provide information on how many people are looking for jobs, how many have them (what they're getting paid and how many hours they are working). These numbers are the best way to picture the current state and future direction of the economy. They also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve.
To depicture economy better, total payrolls are broken down into sectors such as manufacturing, mining, construction, services, and government. The market follows these components closely as indicators of the trends in sectors of the economy; the manufacturing sector is watched the most closely as it often leads the business cycle. The data also include breakdowns of hours worked, overtime, and average hourly earnings. The average workweek (also known as hours worked) is important for two reasons. First, it is a critical determinant of such monthly indicators as industrial production and personal income. Second, it is considered a useful indicator of labor market conditions: a rising workweek early in the business cycle may be the first indication that employers are preparing to boost their payrolls, while late in the cycle a rising workweek may indicate that employers are having difficulty finding qualified applicants for open positions. Average earnings are closely followed as an indicator of potential inflation. Like the price of any good or service, the price of labor reacts to an overly accommodative monetary policy. If the price of labor is rising sharply, it may be an indication that too much money is chasing too few goods, or in this case employees.
By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise and the currency strength will fall.
Jobless Claims
Jobless Claims represents number of individuals who filled for unemployment insurance for the first time.
It is very easy to see how this factor shows the strength of the market: less people without jobs, there is more income which gives a household spending power. Spending is highly correlated with growth of the economy, so the stronger the job market, the healthier the economy. On the other hand, if the number of job seekers fall to such a low level that businesses have a tough time finding new workers, investors might have to pay overtime to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This would also lead to wage inflation and can weak economy and currency strength.
By tracking the number of jobless claims, investors can gain a sense of how tight the job market is. Lately, there is general problem with unemployment, so the rule is: the lower the number of unemployment claims, the stronger the job market, and vice versa.
Again, we suggest you to trade with virtual money for as long as possible, before trading your own real funds. In the learning process, fundamental and technical analyses have a very important place. We will continue this practice of sending educational e-mails in order to help you to get further into analysis secrets.
In the previous e-mail ("Learn Trading: Marketiva Charting Basics") we covered the most basic issues of the Technical Analysis. In this e-mail, we will cover the main part of the other type of analysis: Fundamental Analysis.
Fundamental Analysis is based on the study of factors external to the trading markets, which affect the supply and demand on a particular market. It is opposed to the technical analysis as it focuses, not on currency rates, but on factors like government policies, domestic and foreign political and economic events and changing trade prospects. Thus, the main sources of information for fundamental analysis are news and economic indicators.
NEWS
Latest news is available in the Streamster on the "Latest News" tab and the news articles are collected from different sources on the Internet. By clicking on "Categories" button, it is possible to choose only specific category of news, making it easier for you to focus on topics you find the most useful in trading.
ALERTS
The "Alerts" tab in the Streamster announces market events five minutes before they occur. Market events are divided in two groups: events with high and normal priority. Streamster also has a feature (you can set it in the "Settings" menu, "Pronounce high-priority news, alerts and signals") that allows you to hear alerts narrated aloud.
ECONOMIC INDICATORS
Economic (business) indicators allow analysis of current and predicted economic performances. Economic indicators include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index (a measure for inflation), industrial production, bankruptcies, Gross Domestic Product, retail sales, stock market prices, money supply changes, etc. The most important ones will be discussed below.
GDP (Gross Domestic Product)
The Gross Domestic Product (GDP) is the sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country's economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth.
The GDP report contains information that gives an image of the overall economy and also tells investors about important trends within the big picture, so it needs to be tracked closely.
The most common approach to measuring and understanding GDP is the expenditure method: GDP = consumption + investment + exports - imports
The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totaling roughly two thirds of GDP.
GDP reports are issued quarterly, thus they affect market in a long period rather than having an immediate effect. The reports are broken down into three announcements: advance, preliminary, and final numbers. After the final revision, GDP is not revised again until the annual benchmark revisions each July. These revisions can be quite large and usually affect the past five years of data.
Industrial Production
Industrial Production is a fixed-weighted measure of change in production of the nation's factories, mines and utilities as well as a measure of their industrial capacity, production and of how many available resources among factories, utilities and mines are being used (commonly known as capacity utilization). Since the manufacturing sector accounts for approximately one-quarter of the economy in developed countries, this report has a big influence on market behavior.
Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather. Severe hot or cold spells can boost production as increased heating / cooling needs drive utility production up.
Measure of capacity utilization is also provided in this report. Capacity is very difficult to measure, and it is essentially assumed that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. Historically, the 85% mark is seen as a key barrier over which inflationary pressures are generated. Utilization rate getting too high (above 85%) can lead to inflationary bottlenecks in production. For example, The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures, in that way greatly influencing Forex market.
The Employment Report
In economics, unemployed person is a person who is able and willing to work at prevailing wage rate yet is unable to find a paying job. The unemployment rate is the number of unemployed workers divided by the total civilian labor force (people who are able to work). There are several different methods for measuring the number of unemployed workers. Each method has its own biases and the different systems make comparing unemployment statistics between countries, especially those with different systems, difficult.
The employment report is consisted of actually two separate reports which are the results of two separate surveys: the household survey (produces the unemployment rate) and the establishment survey (produces the non-farm payrolls, average workweek, and average hourly earnings figures, etc.).
Both surveys cover the payroll period which includes the 12th of each month. The employment data also provide information on how many people are looking for jobs, how many have them (what they're getting paid and how many hours they are working). These numbers are the best way to picture the current state and future direction of the economy. They also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve.
To depicture economy better, total payrolls are broken down into sectors such as manufacturing, mining, construction, services, and government. The market follows these components closely as indicators of the trends in sectors of the economy; the manufacturing sector is watched the most closely as it often leads the business cycle. The data also include breakdowns of hours worked, overtime, and average hourly earnings. The average workweek (also known as hours worked) is important for two reasons. First, it is a critical determinant of such monthly indicators as industrial production and personal income. Second, it is considered a useful indicator of labor market conditions: a rising workweek early in the business cycle may be the first indication that employers are preparing to boost their payrolls, while late in the cycle a rising workweek may indicate that employers are having difficulty finding qualified applicants for open positions. Average earnings are closely followed as an indicator of potential inflation. Like the price of any good or service, the price of labor reacts to an overly accommodative monetary policy. If the price of labor is rising sharply, it may be an indication that too much money is chasing too few goods, or in this case employees.
By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise and the currency strength will fall.
Jobless Claims
Jobless Claims represents number of individuals who filled for unemployment insurance for the first time.
It is very easy to see how this factor shows the strength of the market: less people without jobs, there is more income which gives a household spending power. Spending is highly correlated with growth of the economy, so the stronger the job market, the healthier the economy. On the other hand, if the number of job seekers fall to such a low level that businesses have a tough time finding new workers, investors might have to pay overtime to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This would also lead to wage inflation and can weak economy and currency strength.
By tracking the number of jobless claims, investors can gain a sense of how tight the job market is. Lately, there is general problem with unemployment, so the rule is: the lower the number of unemployment claims, the stronger the job market, and vice versa.
Again, we suggest you to trade with virtual money for as long as possible, before trading your own real funds. In the learning process, fundamental and technical analyses have a very important place. We will continue this practice of sending educational e-mails in order to help you to get further into analysis secrets.
