How to do forex fundamental analysis | Fundamentals for Currencies


In this video I’ll be discussing something
that’s a little bit abstract and that is fundamentals for currencies. There are a lot of different reasons a currency
can move and quite frankly it’s way beyond the scope of not only this video but any video
course because there’s always the outlier. However in general there are a handful of
major reasons that tend to make up most of the fundamental reasons for a currency movement. The first one is political. So for example recently as I recall this video
we had the UK vote to leave the European Union. And you can see that the British pound was
just absolutely pummeled for this. And that’s because there’s a lot of uncertainty
and we don’t know what trade’s going to be like for Britain. And traders absolutely hate uncertainty. A political decision like that can really
rock the markets. Also there can be things such as if a particular
party wins election and a particular country maybe they’re not as business friendly as
the previous one that had been in power that can be negative or vice versa. They’re actually very pro-business. Those kinds of situations though tend to occur
in smaller countries as for example like the euro covers while 27 countries now it takes
a lot more to move the euro based upon just one election. So you do have that possibility without a
doubt the de facto reasoning for a currency to move is interest rate expectations. So in this particular scenario not only did
we sell off due to the potential trade problems but it’s very possible the Bank of England
will have to cut rates. So that really drives down the value the higher
the interest rate that the central bank pays the more people want to own bonds and invest
in the country and vice versa. So expectations are for lower interest rates
for the British pound or the British central bank. So with that being the case it’s a little
bit less investment in the UK. You’ve seen that reaction.Also you have to
keep in mind that some currencies are driven by other markets. So for example and this is especially true
in commodity currencies the Australian dollar is highly leveraged to gold. So as demand for gold grows demand for the
Australian dollar grows. We’ve recently been rallying gold and here
we are rallying and the Aussie it makes sense because Australia is a major exporter of gold
to the rest of the world. And if you chose to buy gold from Australia
you’re going to have to pay those miners and those corporations in Australian dollars and
it drives up the demand for that currency. Obviously if gold sells off that doesn’t help
the currency so much. The reality is though that there are other
currencies that simply move in sympathy. So this is a New Zealand dollar. You can see in general it’s been driving in
the same way as the Aussie dollar. And that’s because the two economies are so
intertwined. So the idea is if it’s good for the Australian
economy it’s good for the New Zealand economy and vice versa lot of times you’ll see this
between these two particular currencies if that employment number is bad you know employment
number coming out of Australia that’s really really bad misses horribly. All this on the New Zealand dollar starts
falling as well a little bit of a knock on effect. You see this sometimes with the euro pound
although that’s a little different now that we’ve had the Brexit vote. Other markets such as dollar Canadian dollar
can do land. It just comes down to their global positioning. Normally they’re right next each other because
that’s where you get the most trade typically. Now having said that there are a lot of other
reasons that can move a currency. But if you understand the answers to those
basic questions in general you should have an idea as to where a particular currency
may be going.

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