It is one of the types of analyzes used by traders in financial markets to predict market trends and possible changes that may occur in stock prices, currency rates or commodity prices.
The fundamental analysis examines the elements and factors that affect the economic situation of the countries, which is reflected in the forces of supply and demand for the currency of these countries, that the value of the currency reflects the strength or weakness of the economy of the countries.
The basic analysis determines the strength or weakness of the state's economy using economic indicators, which reflect one sector or a group of economic sectors.
Fundamental analysis is based on analysis of economic, political, and social news as well as market data and various economic indicators.
The most important economic indicators for example:
Has been explained in advance and remained to know the impact on the markets as follows Effect of interest rates on markets:
First: Impact on the Forex markets:
Usually, investors prefer to invest in higher-yielding currencies. If interest rates rise, investors will increase their demand for this currency, and invest in it to obtain higher returns. The result is a rise in demand and an increase in the exchange rate of the currency compared to other currencies.
Second: Impact on bond markets:
There is an inverse relationship between the bond markets and interest rates. Raising the interest rate leads to lower bond prices because investors prefer higher-yielding currency and vice versa. The lower bond prices are making the bonds more attractive
Third: Impact on stock markets:
High-interest rates increase the cost of borrowing money, which stops the expansion plans for companies, so the rise in the interest rate negatively affects the stock markets and lead to a decline in share prices.
Very important: It is considered the strongest news on the economic agenda and prefer to deal cautiously with this news either to exit the market and monitor its impact and enter again after the market calms down and clear direction or using the method of stop loss and commitment to it.
The retail sales report refers to the trend of consumer spending, which is one of the first monthly reports, used to accompany the models of consumer spending, which is linked to consumer goods and spending on services such as health services. Educational services are not included in the report
The impact of retail sales on the market:
First: The impact on the Forex markets: If the retail sales higher than expected, it indicates the general growth of the economy and thus makes the business more attractive and demand increases and hence rising in currency price.
Second: The impact on the bond markets: The rise in retail sales gives a negative signal to the bond market as the high and rapid economic growth means a rise in the interest rate, especially short term which leads to non-attractive long-term bonds due to the low difference in liquidity between the interest rates of long-term and short-term bonds
Third: the impact on the stock markets: The rise in retail sales gives a reference to a strong economy and economic environment desirable, which means high stock prices
The effect of this news is very strong and comes in the second week of each month
Unemployment and job reports
The number of individuals looking for work is usually expressed in a percentage of the working force that does not work. Unemployment reports include some statistics such as the average earnings and the number of new jobs in the economy. These local reports help determine whether there is growth in the economy or not. Publishing unemployment reports on the industrial sectors, so there is a possibility to measure the growth of some sectors such as manufacturing and mining and compare them with the growth of the general economy and other sectors.
High unemployment is a negative indicator of the economy because the loss of jobs means lower-income means lower demand for goods and services, which means a clear impact on consumer spending and lower CPI because it does not cover the wages and salaries it was getting from just its job, so the decrease in consumer spending is a natural decline of The unemployment rise.
The impact of unemployment reports on markets:
First: Impact on the Forex markets (currencies):
The low rate of unemployment means a strong economy and an increase in consumer spending, which strongly affects inflation, so traders in the financial markets will turn their attention to the direction of the central bank and its policies, which may result in a rise in the interest rate to curb inflation, which leads to increased demand for currency against other currencies.
Second: Impact on the bond market:
As we have said earlier, low unemployment is a sign of a strong economy, but with inflation fears leading central banks to raise the interest rate, which leads to lower bond prices.
Third: Impact on stock markets: