Introduction

Fundamental analysis is not a simple science. It is very difficult to automate data processing. Even modern technology can't always evaluate a situation based only on data. This is why there are few traders who rely only on technical analysis - because economic and political data cannot be processed by just one click. High-level decisions have to be made on the basis of your own logical conclusions. But the game is worth the risk. Very often, economic news spoils the strategies and systematic trading of "technicians" and leaves them out the game while "fundamentalists" greatly augment their capital.

The economic news calendar is the primary instrument of the trader who relies on fundamental analysis. The calendar is a schedule containing the dates and times when economic news appears in all countries whose currencies participate in FOREX trade. The calendar also shows the historical and forecasted values of each index. Thus, the trader doesn't have to always be active in the market - they can open a trade platform shortly before significant economic news appears.

Special attention is paid to forecasted values. As a rule, before the index is announced, the market has already taken into account its forecasted value. If the announced index value differs greatly from the forecasted value, an instant increase/decrease in the rate occurs subject to the difference. These cases are primary terms for the trader who uses fundamental analysis.

Major macroeconomic indicators.

Most of the currency pairs on the FOREX market depend on the American dollar in one way or another. Dollar trend speculation can give us a fair estimation of future trends of major traded pairs. For this reason, American economic indicators and indexes influence the market greatly.

Among the 40 USA economic indexes, there are important indicators which can define future market trends a few days in advance as well as insignificant indicators generally ignored by the market. Because of the insignificance of some indexes, we'll consider only main indexes that bring profit of several hundred points by its correct analysis. It is important to note that most of the indicators appear in other countries (Great Britain, Germany, Japan) and have great influence on currency rates of these countries.

1. Gross domestic product (GDP).

Gross domestic product data is published quarterly. GDP is one of the key indicators of the economic situation in a country. It greatly influences the currency rate when the published results differ from the expected results. Growth of the GDP means strengthening of the national economy and leads to an increase in currency rate.

2. Trade Balance.

Trade Balance is the ratio of country's exports and imports. In the estimation of the trade balance there are the following terms: trade surplus -when product is exported more than imported; trade deficit - import value exceeds export value. In countries with a trade surplus, economic upturn and parallel increase in national currency rate take place. Final value of trade balance is published in USA at 13.30 GMT in the middle of each month.

3. Non-farm Payrolls.

These payrolls reflect the number of jobs created each month in non-farm branches (mainly industry) and cover about 80% of USA working population. This is one of the key economic indicators in the USA, as well as a leading indicator that greatly influences the GDP of the country. Non-farm payroll results are issued monthly on the first Friday at 13.30 GMT.

4. Consumer Price Index (CPI).

There is a market "basket" that includes goods necessary to the consumer. The CPI shows the rise and fall in the value of this consumer basket of goods. As a rule, the index advance anticipates the rise in the interest rate of the country that leads to an increase in the national currency rate. Just like the trade balance, the CPI is issued at the middle of each month.

5. Producer Price Index (PPI).

The producer price index shows the level of price change of the consumer basket to include only industrial production. The index itself affects the market only slightly, but the growth of this index along with the growth of CPI leads to great appreciation of currency. PPI is issued one week after the non-farm payrolls.

6. Industrial Production.

Industrial production shows the state of a nation's industry versus expansion/reduction of production output. It is composed of the lumber and mining industry volume as well as the energy industry. The index can seriously impact the market - an increase in value of this indicator leads directly to the growth of the currency rate. This data appears in the middle of each month.

7. Jobless Claims.

Jobless claims reflects the number of registered unemployed citizens in the USA. The indicator is calculated weekly and issued every Thursday at 13.30 GMT. Jobless claims are the leading indicator for non-farm payrolls (for monthly research) and helps in deciding the correct position to take beforehand. The lower the jobless claims indicator is, the more sound the economy for the country is and brings along an increase in the currency rate.

Interest rates

What does the interest rate depend on?

Changes in the exchange rate depend on the interest of investor in the currency (i.e. if the currency is attractive to the investor and he is sure of its steadiness, then the investor will buy exactly the currency of this country). The higher the demand is on the currency, the steadier and higher its rate, and accordingly, the lower the demand, the lower the currency rate.

What interests the investor in a specific currency and makes him choose it? Investors buy currency in order to make profit. That profit is directly dependent on the interest rate of the country (refinancing rate). Therefore, the higher the interest rate, the more investors become interested in the currency rate and the higher its rate.

Trading in the foreign exchange market is used not only for one currency but a pair of them - so the interest in currency pair slightly differs from the interest in one currency. The difference between interest rates of both currencies that compound a pair is used to determine the interest rate of the currency pair.

Sometimes it seems that the market inadequately reacts to an increase in the interest rate of the state. In fact, the market is adequate and is connected to an inflated interest rate - the instrument that the central bank of the country applies as a last resort for disinflation. If the central bank has made such a desperate decision then this is an indicator that the state economy is close to collapse.

The announcement of interest rate does not take place on a certain date. As a rule, it happens after the meeting of the authorized body of the central bank. Forecasted interest rates are issued several weeks before the announcement. The market is often sensitive to the forecasted values and at the moment the final interest rate is issued, the level of interest rate remains unchanged because such change has been made earlier. But if the announced value differs significantly from the forecasted value, the rate will be revalued at that moment and will be accompanied by vast and long-term one-way movements.