Fundamental Analysis

Fundamental analysis is a method of forecasting future price movements of a financial instrument based on economic, political, environmental and other relevant factors, as well as data that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately. Fundamental analysis focuses on what ought to happen in a market. Among the factors considered are: supply and demand; seasonal cycles; weather; government policy.

The fundamental analyst studies the causes of market movements, while the technical analyst studies the effect. Fundamental analysis is a macro, or strategic, assessment of where a currency should be traded, based on any criteria but the movement of the currency's price itself. These criteria often include the economic conditions of the country that the currency represents,
monetary policy, and other “fundamental" elements. Many profitable trades are made moments prior to, or shortly after, major economic announcements.

Leading economic indicators
The following is a list of economic indicators used in the USA. Obviously, there are many more, as well as those of other leading economies. In general, it is not only the numerical value of an indicator that is important, but also the market’s anticipation and prediction of the forecast , and the impact of the relation between anticipated and actual figures on the market. Such macro indicators are followed by the vast majority of traders worldwide. The “quality" of the published data can differ over time. The value of the indicator data is considered greater if it presents new information, or is instrumental to drawing conclusions which could not be drawn under other reports or data. Furthermore, an indicator is highly valuable if one may use it to better forecast future trends.

Each indicator is marked as High (H), Medium (M) or Low (L), according to the importance commonly attributed to it.

CCI - Consumer Confidence Index
The Conference Board; last Tuesday of each month, 10:00am EST, covers current month's data. The CCI is a survey based on a sample of 5,000 U.S. households and is considered one of the most accurate indicators of confidence. The idea behind consumer confidence is that when the economy warrants more jobs, increased wages, and lower interest rates, it increases our confidence and spending power. The respondents answer questions about their income, the market condition as they see it, and the chances to see increase in their income. Confidence is looked at closely by the Federal Reserve when determining interest rates. It is considered
to be a big market mover as private consumption is two thirds of the American economy.

CPI - Consumer Price Index; Core-CPI
Bureau of Labor and Statistics; around the 20 th of each month, 8:30am EST, covers previous month's data The CPI is considered the most widely used measure of inflation and is regarded as an indicator of the effectiveness of government policy. The CPI is a basket of consumer goods (and services) tracked from month to month (excluding taxes). The CPI is one of the most followed economic indicators and considered to be a very big market mover. A rising CPI indicates inflation. The Core-CPI (CPI, excluding food and energy, expense items which are subject to seasonal fluctuations) gives a more stringent measure of general prices.

Employment Report
Department of Labor; the first Friday of each month, 8:30am EST, covers previous month data The collection of the data is gathered through a survey among 375,000 business and 60,000 households. The report reviews: the number of new work places created or cancelled in the economy, average wages per hour and the average length of the work week. The report is considered as one of the most important economic publications, both for the fact that it discloses new up-to-date information and due to the fact that, together with NFP, it gives a good picture of the total state of the economy. The report also breaks out data by sector.


Employment Situation Report
Bureau of Labor and Statistics; the first Friday of each month, 8:30am EST, covers previous month data The Employment Situation Report is a monthly indicator which contains two major parts. One part is the unemployment and new jobs created, the report reveals the unemployment rate and the change in the unemployment rate. The second part of the report indicates things like average weekly hours worked and average hourly earnings. This data is important for determining the tightness of the labor market, which is a major determinant of inflation. The Bureau of Labor surveys over 250 regions across the United States and covers almost every major industry. This indicator is certainly one of the most watched indicators and almost always moves markets. Investors value the fact that information in the Employment report is very timely as it is less than a week old. The report provides one of the best snapshots of the health of the economy.

FOMC Meeting (Federal Open Market Committee): Rate announcement
The meeting of the US Federal Bank representatives, held 8 times a year. The decision about the prime interest rate is published during each meeting (around 14:15 EST). The FED (the Federal Reserve of USA) is responsible for managing the US monetary policy, controlling the banks, providing services to governmental organizations and citizens, and maintaining the country’s financial stability. There are 12 Fed regions in the USA (each comprising several states), represented in the Fed committee by regional commissioners. The rate of interest on a currency is in practice the price of the money. The higher the rate of interest on a currency, the more people will tend to hold that currency, to purchase it and in that way to strengthen the value of the currency. This is very important indicator affecting the rate of inflation and is a very big market mover.

There is great importance to the FOMC announcement, however – the content of the
deliberation held in the meeting, which is published 2 weeks after the rate announcement, is almost as important to the markets.

GDP - Gross Domestic Product
BEA (Bureau of Economic Analysis); last day of the quarter, 8:30am EST, covers previous quarter data. The US Commerce department publishes the GDP in 3 modes: advance; preliminary and final. GDP is a gross measure of market activity. It represents the monetary value of all the goods and services produced by an economy over a specified period. This includes consumption, government purchases, investments, and the trade balance. The GDP is perhaps the greatest indicator of the economic health of a country. It is usually measured on a yearly basis, but quarterly stats are also released.

The Commerce Department releases an "advance report" on the last day of each quarter.
Within a month it follows up with the "preliminary report" and then the "final report" is released yet a month later. The most recent GDP figures have a relatively high importance to the markets. GDP indicates the pace at which a country's economy is growing (or shrinking).

ISM (Institute for Supply Management) Manufacturing Index
Institute for Supply Management; the first business day of the month, 10:00am EST, covers previous month data The Manufacturing ISM Report On Business is based on data compiled from monthly replies to questions asked of purchasing executives in more than 400 industrial companies. It reflects a compound average of 5 main economic areas (new customers’ orders 30%; manufacturing 25%; employment 20%; supply orders 15%; inventories 10%). Any data over 50 points shows the expansion of economic activities, and data under 50 points shows a contraction.

MCSI - Michigan Consumer Sentiment Index
University of Michigan; first of each month, covers previous month data A survey of consumer sentiment conducted by the University of Michigan. The index is becoming more and more useful for investors. It gives a snapshot of whether or not consumers feel like spending money.

NFP - Changes in non-farm payrolls
Department of Labor; the first Friday of each month, 8:30am EST, covers previous month data. The data intended to represent changes in the total number of paid U.S. workers of any business, excluding the following:
- general government employees;
- private household employees;
- employees of nonprofit organizations that provide assistance to individuals;
- farm employees.

The total non-farm payroll accounts for approximately 80% of the workers responsible for the entire gross domestic product of the United States. The report is used to assist government policy-makers and economists in determining the current state of the economy and predicting future levels of economic activity. It is a very big market mover, due largely to high fluctuations in the forecasting.

PMI - Purchasing Managers Index
Institute for Supply Management; the first business day of each month, 10:00am EST, covers previous month's data. The PMI is a composite index that is based on five major indicators including: new orders; inventory levels; production; supplier deliveries and the employment environment. Each indicator has a different weight and the data is adjusted for seasonal factors. The Association of Purchasing Managers surveys over 300 purchasing managers nationwide who represent 20 different industries. A PMI index over 50 indicates that manufacturing is expanding, while anything below 50 means that the industry is contracting. The PMI report is an extremely important indicator for the financial markets as it is the best indicator of factory production. The index is popularly used for detecting inflationary pressure as well as indicating manufacturing activity. The PMI is not as strong as the CPI in detecting inflation, but because the data is released one day after the month, it is very timely. Should the PMI report an unexpected change, it is usually followed by a quick reaction in market. One especially key area of the report is growth in new orders, which predicts manufacturing activity in future months.


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