As its name implies, Fundamental Forex analysis is a fundamental strategy of trading widely used by online Forex traders. It is the combination of certain plans, unpredictable behaviors, and unforeseen events found out from the factors like interest rates and the policy of central bank and even natural disasters. The economic conditions in the currency native country along with a number of other factors are the top economic elements. In other words, any fundamental part of the economy is included into the fundamental analysis. A decent fundamental Forex analysis includes a number of macroeconomic factors like economic growth rates, interest rates, inflation, unemployment level and others.
Element No.1: The economy will be affected by the investment performance. It includes business cycle, inflation or deflation influence.
A. The Business Cycle
The activity of the economy is generally shown by the business cycle. The business cycle consists of four stages: recovery (also known as expansion), peak, contraction (also called recession), and trough.
B. Inflation
At the moment of business cycle peak the amount of goods on demand gets higher than the one offer, which is followed by the price increase and inflation. At the inflationary environment, the amount of money offered for the goods is too high and it makes the conditions for the prices to rise. This lowers the customer’s ability for purchasing.
C. Deflation
During deflation the economical activity lowers making the employers fire the workers and lowering the demand. This is generally followed by the prices lowering that turn into deflation. Deflation is characterized as a process of strong and prolonged prices reduction. The following demand rise is caused by low prices.
Element No.2: Gross National Product (GNP)
Gross National Product is one of the key indicators of the economic activity. It measures the overall wealth of the country. There are 4 components included in the GNP. They are consumer spending, government spending, investments, and net exports.
Element No.3: Monetary Policy
The control of money and credit supply within the economy is the general aim on the monetary policy. The interest rates are affected by these processes, which cause the economic activity decline. The monetary policy is mainly interested in the inflation control.
Element No.4: The activity of the Federal Reserve System (FRS)
The nation’s central bank is the Federal Reserve System. The Federal Reserve Board of Governors is responsible for district banks activity coordination.
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