How to analyze fundamental foreign exchange data?

When conducting foreign exchange transactions, we should not only focus on technical analysis, but also on fundamental data. So how to analyze fundamental foreign exchange data?

The main purpose of fundamental analysis is to predict future price movements through the analysis of macroeconomic things. Fundamental analysis factors include various political and economic phenomena such as interest rates, trade balances, inflation rates, civil conflicts, wars and other macro-level things. Fundamental analysis helps us understand how the various political and economic factors mentioned above affect exchange rate fluctuations. So, how to analyze fundamental data?

Here are a few common economic data points:

1. Interest rate

According to economic principles, interest rate changes are data that directly affect the trend of the exchange rate. If interest rates rise, the return on investment invested in the country increases, resulting in a large inflow of international capital, increasing demand for the local currency, bringing pressure on the appreciation of the local currency or directly causing the appreciation of the local currency. Conversely, if interest rates fall, the local currency depreciates.

Although the interest rate of a country does not change very often, we will find that the exchange rate of each currency pair is constantly changing. This is also affected by the monetary policy statements announced by countries. For example, the United States has maintained an interest rate of 0-0.25% since December 2008, while the US dollar index (the US dollar in the internationalforeign exchange marketThe indicator of the exchange rate situation, which is used to measure the strength of the dollar, is constantly changing.

This is mainly influenced by the 10 monetary policy statements the Fed holds throughout the year. Monetary policy statements set out the Fed's expectations for how soon to raise interest rates in the future. If interest rates are raised in the near future, the dollar index rises; if there is still some time before interest rates are raised, the dollar index falls.

2. UnemploymentRate

Unemployment rate is an important indicator of capital markets and is a lagging indicator.

Unemployment rate% = number of unemployed/(employed + unemployed) %

An increase in unemployment is a sign of economic weakness, which can lead to monetary easing (interest rate cuts or the issuance of the national currency), a decline in the exchange rate, and a depreciation of the local currency. A decrease in unemployment is a sign of economic improvement, which can lead to monetary tightening (interest rate hikes or the suspension of the issuance of the national currency), an increase in the exchange rate, and an appreciation of the local currency.

Non-farm payrolls (NFP) in the United States are also an important indicator of employment. This data measures changes in employment other than agricultural production, that is, employment in manufacturing and services. A decrease in this data indicates that companies have reduced production, the economy has entered a depression, the exchange rate has declined, and the local currency has depreciated. Conversely, the economy is healthy, the exchange rate has risen, and the local currency has appreciated.