[7] Fundamental Analysis
and leading market (economic) indicators
Fundamental analysis is a method of forecasting future price movements of a
financial instrument based on economic, political, environmental and other
relevant factors, as well as data that will affect the basic supply and demand
of whatever underlies the financial instrument. In practice, many market
players use technical analysis in conjunction with fundamental analysis to
determine their trading strategy. One major advantage of technical analysis is
that experienced analysts can follow many markets and market instruments,
whereas the fundamental analyst needs to know a particular market
intimately. Fundamental analysis focuses on what ought to happen in a
market. Among the factors considered are: supply and demand; seasonal
cycles; weather; government policy.
The fundamental analyst studies the causes of market movements, while the
technical analyst studies the effect. Fundamental analysis is a macro, or
strategic, assessment of where a currency should be traded, based on any
criteria but the movement of the currency's price itself. These criteria often
include the economic conditions of the country that the currency represents,
monetary policy, and other “fundamental” elements.
Many profitable trades are made moments prior to, or shortly after, major
economic announcements.
Leading economic indicators
The following is a list of economic indicators used in the USA. Obviously, there
are many more, as well as those of other leading economies (such as
Germany, the UK, Japan, etc.). In general, it is not only the numerical value
of an indicator that is important, but also the market’s anticipation and
prediction of the forecast, and the impact of the relation between
anticipated and actual figures on the market.
Such macro indicators are followed by the vast majority of traders worldwide.
The “quality” of the published data can differ over time. The value of the
indicator data is considered greater if it presents new information, or is
instrumental to drawing conclusions which could not be drawn under other
reports or data. Furthermore, an indicator is highly valuable if one may use it
to better forecast future trends.
version: September 2006 / 47 of 111
