Forex Market Analysis

The use of Technical Forex market Analysis in the FOREX market is about the same as in other trading markets: The price is believed to already reflect all news which would have had an effect on the currency’s value and the forex market. Since countries do not normally have balance sheets, how can Fundamental forex market analysis be conducted on a nation’s currency? Since this type of forex market analysis involves looking at the intrinsic value of an investment, its application in the forex market will entail the study of the economic conditions that influence the valuation of the country’s money. Here are some of the major fundamental factors that play a role in the price movement of a currency in the forex market.

Economic indicators are reports that are released by the government or a private organization which detail the country's economic performance therefore affecting the forex market. These reports are the means by which a nation’s economic health is measured. These reports are released at scheduled times, thereby providing a readable marker of whether a nation's economy has improved or declined. There are four major indicators that contribute to the forex market changes.  

• Forex Market: Gross Domestic Product (GDP) - considered by many to be the broadest measure of a country's economy. It represents the total market value of all goods and services produced by that country in a given year and in many cases greatly affects the forex market. Since the GDP figure itself is a lagging indicator, most investors focus on the two reports that are issued in the months before the final GDP is released: the advance report and the preliminary report some think are a prelude to affecting the forex market. Significant revisions from one report to the next can often cause considerable forex market volatility.
• Forex Market: Consumer Price Index (CPI) - a measure of change in the prices of consumer goods across 200 different categories including the forex market exchange. This report, when compared to a nation's exports, can be used to determine whether a country is making or losing money on its products and services. This is a contributing factor to change in the forex market. The exports must be carefully monitored as well because their prices often change relative to a forex market strength or weakness.
• Forex Market: Retail Sales report measures the total receipts of all retail stores. This report is particularly useful because it is an indicator of broad consumer spending patterns, and is adjusted for seasonal variations so it will contribute to moves in the forex market. It can be used to predict the performance of more important lagging indicators. It is also valuable in assessing the immediate direction of a country’s economy therefore the forex market. Revisions to advance reports of retail sales can cause significant volatility in the forex market.
• Forex Market: Industrial Production report shows the change in the production of factories, mines and utilities within a nation. It also reports the capacity utilizations, which are the degrees to which the capacities of the factories are being utilized. Forex Market traders using this indicator are usually concerned with a nation’s utility production.
• Forex Market: There are many other important economic indicators, and still more private reports that can be extremely useful in evaluating forex market fundamentals. It is important to not only look at the numbers, but to also take the time to know and understand what they mean and how they affect a nation's economy when trying to factor into the forex market.  When used properly these indicators can be a valuable resource for the forex market investor.

Forex Markets: Effects of U.S. Dollar Fluctuations in relation to the Forex Market:

Movements in the forex market exchange value of the United States dollar have an effect on the U.S. economy, interest rates, domestic and international trade  and the monetary policies of not only America but other nations around the world. The effects of a rising dollar relative to other forex market currencies are varied and substantial.  We will examine some of the consequences that a stronger dollar would generate on the global economic stage in the forex market. (a falling dollar would, of course, produce opposite effects). Example:

• Forex Market example 1: Foreign individuals holding U.S. forex market dollars would receive more forex market foreign currency per dollar when exchanging those forex market dollars for their home forex market currency. American travelers abroad would also benefit from a stronger forex market dollar, receiving a greater amount of local forex market currency for each forex market dollar they trade in the real market or the forex market.
• Forex Market example 2: Foreign based importers who sell goods or services to the United States are paid in forex market dollars and would therefore obtain more of their home currency in exchange in the forex market. As a result they can afford to charge less in forex market dollars for their goods or services and can be more competitive relative to U.S. providers of similar items.  Demand for comparable domestic goods and services would drop and price competition from imports would further reduce the ability of U.S. companies to increase prices, which in turn would put downward pressures on inflation and forex markes. The slowing of the economy and downward price influences would help to depress U.S. interest rates and would have an affect of the forex market
• Forex Market example 3: U.S. exporters selling their goods and services overseas are paid in forex market foreign currencies and therefore receive fewer dollars when those currencies are changed into dollars therefore having an affect on the forex market. For this reason, U.S. exports must be priced higher or profit margins and profits will be lowered. Exports from the United States are thereby discouraged and exports in the U.S. balance of payments accounts drop causing the economy to slow. Again, downward pressure on U.S. interest rates results due to this weakening in demand in the forex markets.
• Forex Market example 4: Foreigners holding investments in the United States receive more income when they convert interest, dividends, and rent from forex market dollars into their home currency. The value of those U.S. investment forex market also appreciates when translated into their forex market currency. Foreign investment possibly forex markets in the United States becomes more attractive, especially if the dollar is expected to continue to appreciate. Foreigners' willingness to invest in the U.S. continues as long as they feel little concern for the safety of their investments and have no fear of default. Because of the supply of funds flowing to America from abroad, U.S. interest rates are forced downward due to lower monetary demands in the forex market.
• Forex Market example 5: Foreign investors who want to buy U.S. investments in a strong dollar forex market must pay more of their own forex market currency to acquire forex market dollars for the purchase. Therefore, investment in the United States is discouraged unless the investors believe that the value of the forex market dollar will continue to rise.
• Forex Market example 6: Oil prices are denominated in forex market U.S. dollars; therefore, forex market dollar fluctuations have no effect on the cost of U.S. oil imports. However, other countries would need more of their forex market currencies to obtain the necessary forex market dollars to purchase oil, thereby diverting more resources to the procurement of oil and depressing their economies and driving the forex markets. Conversely a stronger forex market dollar would help oil-producing nations by allowing them to buy more foreign goods with the more valuable forex market dollars they receive.