Forex – fundamental analysis – global analysis, specific analysis, interest rates and important factors

In this article we will discuss few important points of fundamental analysis.

We know that there are two approaches towards trading – fundamental and technical analysis. Fundamental analysis is based on macroeconomics events in the world-wide business, various reports such as interest rates, unemployment, CPI reports Bernanke’s and Draghi’s speeches and many more.

Global factors – have influence on whole market instruments – stocks, bonds, options etc.

Interest rates have strong influence on market pairs. Increasing of interest rates results in strengthening  of home currency. For instance if FED increases interest rates, dollar appreciates. It’s very important to have a clue about current interest rate and its change.

Helpful link: http://www.fxstreet.com/fundamental/interest-rates-table/

23.02.2012

Inflation is one of the factors with strong influence. Increasing inflation is acceptable for stable economy but if inflation growth is faster, stronger than expected it has negative impact on economy. Result is weakening of currency.

Helpful links: http://www.bls.gov/cpi/ and http://www.ons.gov.uk/ons/publications/all-releases.html?definition=tcm:77-22462%3F

Inflation in USA

GDP  –  Gross Domestic Product – the most important indicator of economy state. GDP gives report about market value of all products and services produced within a country. If GDP declines economy is not so effective as previous year, meaning people don’t want to buy currency which economy weakens hence currency depreciate.

Helpful link: http://stats.oecd.org/

Fiscal and Monetary policy include some of the mentioned factors (monetary policy defines interest rates). These policies influence market behaviour every day. Slight change in taxes or FED governor speech might have huge impact. Trading these news is risky but if performed correctly, you can be a rich guy in a blink.

Forex trading most important reports: specific analysis

 

Employment report gives information about current unemployment in USA. Lower rate is considered to be dovish whereas higher rate is hawkish sign. Useful information for report tracking, benchmarks and other analysis can be found here. http://www.bls.gov/ces/

Retail sales provides information about food, beverages, clothing and other products sold during last month.

Helpful link: http://www.census.gov/retail/

CPI – Consumer Price Index report about changes in the prices paid by citizens for a basket of goods. Basket consists of daily consumption products such as food, clothing, medications, drugstore etc.

Helpful link: http://www.bls.gov/cpi/

Housing reports are very important and investors tend to make decisions upon them. There are more reports with strong influence on the market which can be found in this helpful link: http://www.census.gov/housing/

FOMC minutes report comes out three weeks after FOMC meeting. It has very strong impact on the market and every Forex trader should pay attention to them no matter what.

Helpful link: http://federalreserve.gov/monetarypolicy/fomc.htm, http://www.fxwords.com/m/minutes-of-fomc-meeting-united-states.html

 

Regarding reports, I strongly suggest to use economic event calendar. You can easily find any calendar in few minutes by googling. One of the widely used is http://www.forexfactory.com

Forex – fundamental analysis – time zones, opening hours, volatility

 

Brokers  claim you can trade Forex 24/5. Of course, you can, but it’s rather marketing saying than reality. During some hours on particular pairs, basically, there is no liquidity, therefore trading is hardly possible. In this article I want to talk about forex opening hours, sessions, volatility on particular trading hours and bit more.

Opening hours and trade sessions

 

There are three major Forex sessions :

– American session

– European session

– Asian session

Time zones

 

Before talking about opening hours and overlapping of trading sessions, it’s essential to clarify world time zones. Most important time zone is GMT – Greenwich Mean Time. Named after Royal Observatory in Greenwich in 1884 was declared that this place will bear zero degrees longitude and established the 24 time zones.

Most used time zones in Forex:

GMT – Greenwich Mean Time – London 00:00h

JST – Japan Standard Time – Tokyo +09:00h

AEST – Australian Eastern Time – Sydney +10:00h

EST/EDT – Eastern Standard/Daylight Time – Ney York -05.00h/-04:00h

We defer Standard time (beginning of November – beginning of March) so called winter time. Daylight saving time (beginning of March – beginning of November) is summer time. During Standard time (winter) time difference between London and New York is -5 hours. In Daylight saving time(summer) difference is just -4 hours. We can conclude that during summer time we switch our clock one hour back.

Last time zone is LINT – Line Islands Time +14:00h. It’s islands in Pacific ocean close to Hawaii. Between these bunch of islands is a line which divides +zone and – zone. Time of day is the same as in Hawaii, but the date is one day ahead.

Now when we defined time zones, we can set opening hours.

 

Volatility

 

Volatility is dependant on opening hours and overlapping of Forex sessions. I trade EUR/USD as my main pair and I can say the market is most volatile during London (European) session. (2 A.M.–12 P.M. EST – New York time). London is the most important Forex hub with approximately 30% market share. Most world banks have dealing desk in London and many huge transactions occur in London session. As we can see on the table below, 6 of the major pairs surpass line 80, which is not observable at other sessions.

From the table is obvious that pairs GBP/JPY and GBP/CHF are the most volatile ones, therefore traders can generate simultaneously highest profit, but highest loss as well.

American session (8 A.M.–5 P.M. EST New York time) is slighty behind London. With approximately 19% of market share trades might expect volatile market full of generous moves.

 

 

With around 120 pip range are pairs GBP/JPY and GBP/CHF most volatile options. They are slightly less volatile than during European sessions but still strong enough to generate nice profit.

The least volatile is Asian session. Asian session consists of Tokyo hub, which is biggest in this region according to market share, followed by  Hong Kong and Singapore.

U.S.–Eeuropean overlap: 8 A.M.–12 P.M. EST offers traders nice volatile market. The range of trading between 8 a.m. and noon EST constitutes on average 70 percent of the total average range of trading for all of the currency pairs during the European trading hours and 80 percent of the total average range of trading for all of the currency pairs during U.S. trading hours.

European – Asian overlap: 2 A.M.–4 A.M. EST is much less volatile. It’s caused by slow trading during the Asian morning.

I’d like to show you two comprehensive tables showing sessions overlapping and volatility.

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