Fundamental Analysis Of The Forex Market
A Forex calendar is the most important source of data for your fundamental analysis. This is a type of software that lists the fundamental events, their time, influenced currencies, power of influence, previous value, expected value and real value (once the news is released). Fundamental analysis in Forex trading strongly depends on the economic trading calendar. Introducing the Forex Economic Calendar Fundamental analysis is the twin sister of technical analysis.
Measures the cost to buy a defined basket of goods and services. How to analyze the charts on the binary options pdf. It is expressed as an index based on a starting value of 100. A CPI of 112 means that it now costs 12% more to buy the same basket of goods and services today than it did when the starting index value was first determined. By comparing results from one period to the next, it is possible to measure changes in consumer buying power and the effects of inflation. Inflation is a concern to currency traders as it affects the price of everything bought and sold within an economy, and this has a direct impact on the supply and demand for a country's currency. Inflation is an increase in the price of goods and services.
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While inflation by its very definition suggests economic growth, inflation that occurs too rapidly actually weakens consumer buying power as prices increase at a faster rate than salaries. Most Central Banks maintain a 'benchmark' interest rate. Depending on the jurisdiction, the Central Bank rate serves as the guide for the rate at which the Central Bank and other commercial banks lend each other funds to meet short-term operational needs.
Commercial lending rates are also affected by the Central Bank rate, and it is this linking of short-term rates to the commercial rates that makes interest rate policy the primary monetary tool for Central Banks. bot binary options iq option As noted earlier, the Central Bank can increase rates during periods of high growth (inflation) in a bid to reduce consumer spending which should help bring growth back to a more manageable level. If deflation is a problem and the economy needs a boost, Central Banks can lower interest rates to entice more consumer lending. The expected outcome is that overall consumer spending will increase as consumers have access to less costly loans.
Forex traders in particular pay close attention to changes in interest rates as investors tend to seek out currencies offering higher returns and this demand can cause a currency to appreciate. Also, the greater the interest rate differential between two currencies, the greater the profit potential of a carry trade strategy. See Trading Strategies and Best Practices in Lesson 4 for more information on carry trades. Yield is the interest on fixed-income securities which includes such investments as futures contracts and government bonds. Referred to as 'fixed' income because the payment stream (the yield) remains constant until maturity. For example, a simple 5-year bond with a 3 percent annual yield, would pay $300 a year for the next five years on an initial $10,000 investment.
Fundamental Analysis Of The Forex Market Report
The yield curve shows the relationship between the yield, and the time to maturity. When dealing with fixed-income securities, investors want to ensure that the fixed yield remains profitable right up until maturity. As an investor you may be happy with a 5 percent return when the basic lending rate is 2 percent. However, if short-term interest rates rise and the lending rate jumps to 6 percent, your 5 percent return is no longer so attractive, and there are probably other options that could generate more income for your investment. Liquidity spread is the term used to describe the difference between the yield and short-term rates. If short-term interest rates rise above the fixed yield, the bond holder is said to be in a position of negative liquidity spread.