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Fundamental Analysis


  Fundamental Analysis

A fundamental trading strategy consists of strategic assessments in which a certain currency is traded based on virtually any criteria excluding the price action. These criteria include, but are not limited to, the economic condition that the country the currency represents, monetary policy, and other elements that are fundamental to economies.

Currency prices are a reflection of the balance between supply and demand for currencies. Interest rates and the overall strength of the economy are the two primary factors that affect supply and demand. Economic indicators (for example, GDP, foreign investment and the trade balance) reflect the overall health of an economy. Therefore, they are responsible for the underlying changes in supply and demand for that currency. A tremendous amount of data is released at regular intervals, and some of this data is significant. Data that is related to interest rates and international trade is analyzed very closely.

Key Economic Indicators are the most likely to move the market is the actual numbers differ with the consensus 

 

Source

Indicator

Importance

Explanation

Budget Statement (Monthly)

Monthly report of the government budget

High

Published in mid-month and reviews the state of the US economy. The report includes the government deficit)G-T).

Chicago PMI Purchasing Managers Index

Chicago Purchasing Managers Index

High

Published on the last day of each month, reviewing purchasing activity in the Chicago area. Indicator starts at 50. A reading above 50 indicates growth.

Consumer Confidence

Consumer confidence index

High

Household survey on: financial situation, labor market, wages etc. The report includes both current and future state, and its weight in the index is 60%.

CPI & Core CPI

Consumer price index and core index (excluding food and energy)

Very high

Composed of: Food, clothing, energy, housing, transportation, healthcare, education etc. This is an indicator of inflation and impacts the interest rate decisions by the central bank.

Current Account Balance

Current account

High

Published in the middle of the final month of each quarter - for the previous quarter. Measures in USD the value of international trade balance of goods and revenues, excluding unilateral transfers.

Durable Goods Orders + Durable Goods Orders less transportation

Orders of durable goods (less transportation component)

Medium-high

Measures in USD orders of goods with a useful life of over 3 years. This may be skewed due to non-recurring expenses. Provides an indication of demand by producers and individuals in the economy.

Employment Report

Employment report

Very high

Published at the start of each month for the previous month. Composed of two surveys: One surveys 400,000 businesses and the other surveys 60,000 households. The report provides an accurate, comprehensive snapshot of the US economy. It indicates changes in payroll, unemployment, employment tax and average hours worked.

Existing House Sales

Sales of existing homes

Medium-high

An indicator of construction industry activity. Buying a house means economic confidence. Sales of existing homes constitute 84% of total home sales in the USA.

Housing Starts Building permits

Housing starts: Building Permits

Medium

This indicator may imply trends in private consumptions and consumer confidence. This indicator is impacted by interest rates and by the mortgage market.

FOMC MEETING Federal Open Market Committee

Meeting of Federal Reserves representatives - a decision on interest rates.

Very high

The meeting is convened 8 times a year, to determine the monetary interest rate. Attention is given to the president's statement and to the meeting minutes (this is a 2-day long meeting). The committee is composed of 7 governors and 5 regional reserve bank presidents.

GDP annualized: Advance Price deflator

Gross domestic product

Medium

Reviews data for each month in the current quarter, compared to the same month in the previous quarter. A strong reading may lead to inflation and higher interest rates. GDP deflator: Price change

Industrial Capacity Utilization Production

Industrial production, utilization of production capacity

High

These indicators review production efficiency and capacity, from which inflationary indicators are derived. If production capacity is higher than 85%, this could lead to inflation.

ISM manufacturing index

National manufacturing purchasing managers' index

High

A reading above 50 indicates expansion. This is considered a leading indicator for forecasting the economic cycle. Data composed of: orders + production + employment + inventory.

ISM services (Non Manufacturing )

National services (non-manufacturing) purchasing managers' index

Low-medium

Index of service providers. A reading above 50 indicates expansion. This indicator offers an overview of economic trends.

Michigan Sentiment :preliminary/final

Confidence index by the University of Michigan

Medium-high

Published twice monthly for the current month. Data is similar to Consumer Confidence Index, and also includes a consumer expectations component.

Personal Income and Personal Spending (PCE)

Personal Income and Personal Spending

Low

Indicates changes in the public's income and expenses. This may imply changes in private savings

Philadelphia Fed Survey

Philadelphia Purchasing Managers Index

High

Published at the end of each month for the current month. This index simulates the national index with a 75% probability, and is measured from 0. A positive reading denotes expansion, and a negative reading - contraction.

PPI and Core PPI

Production price index and core index (excluding food and energy)

Very high

Usually serves to locate inflationary processes by examining production input prices.

Trade Balance

Foreign trade balance

Very high

Measures the gap between exports and imports (EX-IM) and helps test and explain economic trends.

Tankan Index

Managers confidence in Japan

Very high

10-30 Lower = better

ZEW

Consumer confidence index in Germany

High

 

IFO

Managers confidence in Germany

Very high

 

Factory orders

Factory orders

Medium

 

PMI

Purchasing Managers Index

High

 

Retail Sales and Retail Sales less Automobiles

Retail sales (less automobiles)

High

Measures total retail sales revenues (excluding automobiles). This is an important component of total private consumption.