Archive for July, 2009

Fundamental Analysis should not be Forgotten in Forex

Before starting on the foreign exchange market, we must know some basic precepts of forex. Among the concepts essential to know, next to the carry trade or the technical analysis is the fundamental analysis.

Again, it should be noted that fundamental analysis is inseparable from the technical analysis, and vice versa, because they allow when combined to make investment choices, if not wiser, at least more thoughtful . Fundamental analysis is based on the evaluation of an economic indicator. These include employment figures or the publication of the index of activity in Chicago.

The main economic indicators

Of all the economic indicators, some have a larger impact on other currencies. Thus, the index of activity in Chicago, when published, had less influence on the exchange rate of the dollar as the publication of unemployment figures. In fact, to know what the economic indicators are the most vital, you only need a small experience. But, beginners in the foreign exchange market can go, at least, the principle that there are four economic indicators do not miss when it appears on the economic calendar this week. It is the interest rate, the unemployment rate, the rate of inflation and the consumer confidence index. These four economic indicators generally affect investment decisions of many traders.

The importance of the irrational

But, we must always keep in mind that financial markets are, by nature, thank you for the irrational behavior. Thus, even if the choice of a central bank to lower its rates or not, for example, often plays on the currency rates, one should keep in mind that nothing is gained. We must take account of market expectations, which can be met or satisfied, and the aversion to risk may go completely unnoticed to the publication of economic indicators.

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How Currencies are Traded in Forex ?

Foreign Exchange Market is a financial market where transactions are made on major currencies. Currencies are identified by a code of 3 letters:

* EUR (euro)
* USD (U.S. dollar)
* GBP (Pound sterling)
* JPY (Yen)
* CHF (Swiss franc) etc ...

An operation on the Foreign Exchange Market is the buy or sale of a currency with another currency. Of course, buying Euro (EUR) against the dollar (USD) is selling dollars against the euro, and only the amount and price are expressed differently.

The Exchange Rate is the price of a unit of one currency expressed in another currency. If the price of the euro against the dollar, noted EUR / USD equals 0.9100, EUR 1 million exchanged against 910 000 dollars. One can of course assume that the dollar to euro, USD / EUR is equal to 1/0.9100 = 1.0989 and $ 1 million is exchanged against 1.098 900 euros.

Because of the importance of the dollar in international trade, the practice is to publish on the priority of each currency against the dollar and sense of listing is not necessarily the same. Thus, it shows:

* EUR / USD the euro against the dollar,
* GBP / USD the pound against the dollar,
* USD / JPY the dollar against the yen,
* USD / xxx dollar against other currencies.

2 An exchange between currencies other than the dollar is made in a course, said Cross, who inferred from 2 in those currencies against the dollar. The rule applies fractions. For example:

* GBP / EUR = (GBP / USD) / (EUR / USD)
* EUR / JPY = (EUR / USD) (USD / JPY)
* CHF / EUR = 1 / [(USD / CHF) (EUR / USD)].

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