Currency Exchange Fundamental Analysis

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Foreign Exchange Fundamental analysis is the application of micro- and macroeconomic theory to markets to predict future trends. For more information on fundamental analysis, just see the questions below.

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The following are a list of key US economic indicators:

Trade balances closely followed by players in FX, because of the influence they have. It often used as an assessment of the overall economic activity in a country's or region's economy. Export activities not only reflect the competitive position of the country in question. But also the strength of economic activity abroad. Trends in the import activity reflect the strength of domestic economic activity.

A country that runs a significant trade balance deficit tends to generally have a weak currency. However, this can be offset by substantial financial investment inflows.

Foreign Exchange Fundamental Analysis

CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. A rising CPI often followed by higher short-term interest rates. Which can be supportive for a currency in the short term. However, if inflation becomes a long-term problem? Confidence in the currency will eventually be undermined and it will weaken.

The durable goods orders index is a major indicator of manufacturing sector trends. Rising durable goods orders are normally associated with stronger economic activity and can lead to higher short-term interest rates, which is usually supportive of a currency.

Currency Exchange Fundamental Analysis

The GDP report has three releases: 1) advance release (first); 2) preliminary release (1st revision); and 3) final release (2nd and last revision). These revisions usually have a substantial impact on the markets.

A high GDP figure usually followed by expectations of higher interest rates. Which mostly positive for the currency concerned at least in the short term unless there are also inflationary pressures.

In addition to the GDP figures, there are the GDP deflators, which measure the change in prices in total GDP as well as for each component. The GDP deflators are another key inflation measure beside the CPI. In contrast to the CPI, the GDP deflators have the advantage of not being a fixed basket of goods and services, which means that changes in consumption patterns or the introduction of new goods and services will be reflected in the deflators.

Types of Foreign Exchange Analysis

Large increases in the payroll employment considered signs of strong economic activity. That could eventually lead to higher interest rates. Which generally supportive of the currency at least in the short term. If, however, it estimated that an inflationary pressure building up. This may undermine the longer-term confidence in the currency.

The PPI gives an important inflation indication as it measures price changes in the manufacturing sector. And inflation at the producer level often passed straight through to consumers.

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