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Trading with technical analysis
Central Bank Rates |
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Currency |
percentage |
EUR |
4,00% |
USD |
5,25% |
JPY |
0,50% |
GBP |
5,50% |
AUD |
6,25% |
CAD |
4,25% |
CHF |
2,50% |
NZD |
8% |
Fundamental Analysis
Fundamental Analysis refers to analysing the economics of each nation which reflect in the value of their currency.
What drives the currency of each nation is the macro economic of each state. In a nutshell no investor would leave their money into the dollar if the US economy is in bad shape. There are a few factors that make up this macro view of any economy.
Interest rates, GDP, unemployment, Trade Balances, and Commodities market.
Interest rates
When the economy is performing well, the government is expected to increase interest rate to keep in line with inflation and the reverse is true which is when the government is expected to reduce interest rates to boost investment activities as cost of borrowing is cheaper.
When interest rate of one currency is higher than the other then most likely that it will have an advantage over the weaker interest, which equates to weaker economy. A strong interest bearing currency will always attract investors into the economy.
In real terms if you buy USD (interest of 4.25%) against JPY (0% interest) then you would be earning overnight interest on the position, conversely you would be paying interest of 4.25% per annum if you were selling USDJPY.
Gross Domestic Product
GDP is one of the best indicators showing the health of the economy. The entire state of the economy could be seen when GDP is analysed in conjunction with other economics such as Retail Sales and Manufacturing Orders volume.
Unemployment
High unemployment will lead to low consumer confidence as well as slower spending by every households therefore it will drag the economy into recession. Another way of analyzing the level of unemployment is to see how many new jobs are being created by the economy on any given month.
Trade Balance
In short, the trade balance of any economy equates to Net of Imports & Exports. We should view the economy of the particular currency as a corporation and when the corporation is in debt then its credibility would be diminished. Example, the Japanese economy has been producing Trade Surpluses since the 80’s thanks to its vibrant export industry. On the other hand the US has been showing higher trade deficits every year and this was the main cause for the currency’s depreciation in recent years. However in the past 18months we have seen a robust economy and most economists are discounting the trade deficits as long as interests & GDP are on the rise ( and the fact that the US economy has been able to show that foreign capital flowing into the economy has helped it finance this deficit.) ??
Commodity Market
Essentially Oils & Gold.
There is a positive correlation between Oils & the Canadian Dollar (CAD) as it is a main source of their exports. In addition to oils, Canada has a vast wealth of minerals such as gold and silver and when these commodities are rising, the CAD would rise also.
On the other hand, Oils will have a greater impact on the Japanese economy than any others as they import 90% of their oils and more JPY would be needed to acquire oils at a higher price. Translating to mean higher oils bad for JPY. The market participants also view higher oils as bad for the USD, in particular USDCAD pair.
