The fundamental analysis of foreign currency exchange uses market trends to determine the future value of a particular currency in the market.
Fundamental analysis provides an outlook of currency movements based on political, economic, environmental, and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.
Fundamental analysis strategies that support Forex trading require a basic understanding of supply and demand since it provides information about how economic and political events influence the currency market. It is about looking at the intrinsic value of an investment. Its application entails examining the economic conditions that affect the valuation of a nation's currency.
As said by Yee Kok Siong the basis of fundamental analysis is mainly on the political and economic changes as these can frequently affect currency prices. Traders often collate information from news sources to determine unemployment forecasts, political ideologies, economic policies, inflation, and growth rates. Traders keep track of the figures and statements given in speeches by important politicians and economists, as well as announcements related to United States economy and politics.
It is normally accepted that if there is a decrease in supply but the level of demand remains the same, there will be an increase in market prices. Conversely, if there is an increase in supply, it produces the opposite effect. Fundamental analysts study the supply and demand for the country's currency, products or services, quality management, government policies, past and forecast of performance, future plans and all the economic indicators like Gross Domestic Product (GDP), industrial production, interest rates, international trade and retail orders.
After all data is gathered from these studies, the analysts will construct a model that will consider the current and estimated value of a currency against another. Analysts will then decide whether the currency ought to rise or fall after estimating the intrinsic value and comparing it to the current exchange rate.
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Yee Kok Siong is an arbitrageur and an investor. Mr. Siong is a self-motivated entrepreneur who believes that no market is perfect and it is up-to an individual to understand that imperfect gap and business opportunity and make the most out of it.
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