The Principles of Fundamental Analysis

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Based on the principles underlying the research, it will be either fundamental or technical. The key components of technical analysis are predicated on the statement that the link between the supply and demand within the price chart is complied with fundamental principles of mathematics. Depending on fundamental analysis, the market is dynamic, based on numerous factors, including economic, financial and political.

Taking that into cognizance, fundamental analysis evaluates data of economic, financial and political nature that directly or indirectly influences the market price behavior; particularly, the principal economic indicators of the leading world economies which may have a control on the rates of main currencies. GNP, GDP, rate, percentage, CPI and PPI indexes, industrial and commodity price index, balance of trade and balance of payment are the foremost important indicators.

GNP is that the key indicator for the national economic climate which has such characteristics as consumption, investments, industrialization, infrastructure development, government expenditures, importation and exportation. GNP is proportional to exchange rate: high GNP level indicates stable financial condition and flow of foreign investments, which would lead to a rise in demand for national currency. Prolonged GNP growth will cause inflation to lower that the rate of interest rise is employed; as a result demand for currency is growing.

Unemployment index indicates relation between healthy and out of work population that ideally mustn’t exceed the 6% scale. The increase in unemployment percentage negatively affects the currency rate – it falls down. Inflation has the similar result on the currency rate and may be measured by price development rate. Thereof the inflation and unemployment indicators are inversely proportional.

Furthermore, key events for the policies of various countries: elections, economic and financial reforms, enterprise of international agreements, etc. The major financial component that is taken into account by analysts is that the key rate of interest of central banks that determines the entire profitability of investments into a country’s economy. Improved performance of this indicator evolves favorable conditions for the national currency growth.

Besides, the national currency rate is influenced by natural disasters, terrorist attacks, emergency and alternative act of God things.
Fundamental analysis, considering the problem of evaluating various indicators in numerous countries, is analyzed professionally by qualified specialists.

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