Fundamental Analysis

Fundamental analysis is the analysis of the economical and political situation in those countries whose currencies are traded in the FOREX market. The task of the fundamental analysis is to estimate the possible influence of certain events on the rates movement. Fundamental analysis includes the analysis of economical indicators. They are regularly published and allow to estimate tendencies in the economies of different countries. The results of such research serves to explain the current movement of currency rates and to forecast future movements. Only US economical indicators will be considered below. Those indicators influence the price movement most of all.

Business Inventories

This includes stocks of produced goods, components and semi manufactures in warehouses. The following rule is observed: a few months of inventory rise may be a sign of economic stagnation. The influence of this indicator on the market is limited. However, a stable trend in these dynamics strongly influences the market. A rise of the index value produces a negative impact on the dollar rate. Its value is published in the middle of every month at 08:30 EST (New York).

Chicago PMI Index

This is the index of the business activity of the Chicago Managers Association. It represents the results of managers' poll as to the purchases in the industrial sphere in Chicago. This index touches on the situation with industrial orders, prices for production and stocks. Values below 45 to 50 mean a slowdown in economic development. It is closely watched, since it is published shortly before the publishing of the business activity index of the National Association of Purchasing Managers (NAPM). This index strongly influences the market as it can give an idea of the future business activity indicator at the national level (NAPM). A rise in value entails the dollar rate rise. Its value is published on the last business day of every month at 10:00EST (New York).

Consumer Confidence Index

This review is an attempt to measure consumers' optimism. The index has been calculated from 1967 onwards. In the beginning, it was equal to 100. Its influence on the market is limited as it cannot reflect the real economic situation. But it is traditionally used to forecast tendencies in the employment sphere and general state of economics. A rise in value is a positive factor for the development of the national economy and leads to the dollar rise. Its value is published after the 20th of every month at 10:00 EST (New York).

Consumer Price Index (CPI)

The Consumer Price Index determines the change in retail prices for the services and goods 'basket. The CPI is thought to be more reliable if it does not take into account the food and power industry. When calculating this figure, imported services and goods prices are taken into account. The Consumer Price Index is the main indicator of the inflation level in the country. This index is analyzed along with the PPI (Producer Price Index). If the economy develops in normal conditions a rise in the CPI and PPI values can result in a rise of base interest rates in the country. This, in turn, leads to a rise of the dollar rate, as investing into a high interest rate currency becomes more attractive. The value is published in the middle of every month (soon after the publishing of the PPI) at 08:30 EST (New York).

Durable Goods Orders

Durable goods are those with a life time of over three years such as cars, furniture, etc. To exclude the volatility inherent in military and transport orders, indicators that do not take into account defense and transport orders are singled out from this indicator (durable goods orders excluding defense and durable goods orders excluding transportation). This indicator is important for the market as it gives an idea of the confidence of the consumers of the production in the current economical situation. Since durable goods are quite expensive a rise in the orders shows the readiness of consumers to spend their funds on the goods. Therefore, a rise of this index is a positive factor for economic development and brings about a rise of the national currency. Its value is published on the 4th week of every month at 08:30ET (New York).

Factory Orders

Factory orders include durable goods orders (over 50% of all orders) and short-term goods orders such as food, clothes, light industry products and goods meant to be used along with durable ones. Durable goods are those with a life time of over three years such as cars, furniture, etc. The influence of the factory orders indicator on the market is limited. Its development trends are especially closely watched. A rise in its value is a positive factor for the development of the national economy and brings about a rise in the exchange rate of the dollar. The value is published at the beginning of every month at 10:00 EST (New York).

Federal Budget

The federal budget characterizes the ratio between the proceeds and expenses of the state. When the state proceeds level exceeds the state expenses level a positive balance is formed. When the state expenses level exceeds the state proceeds level a negative balance is formed (deficit). The influence of this indicator on the market is insignificant. It is usually used for short-term economic analysis. The budget deficit is considered in the context of other indicators such as the production price index (PPI), consumer price index (CPI), and financial aggregates (M1, M2, M3), etc. The value is published around the 20th of every month at 14:00 EST (New York).

Gross Domestic Product (GDP)

The gross domestic product is the main indicator reflecting the state of the national economy. According to the Keynesian model of economic development, the GDP can be represented as GDP = C + I + S + E - M where C is consumption, I stands for investments, S for state expenses, E for exports, and M for imports. The GDP is expressed as an index in relation to the previous period considered and as the absolute value of the total of the prices for goods and services produced. It strongly influences the market. A rise in the value of the GDP brings about a rise of the national currency.

Housing Starts

This indicator shows the number of the newly started houses. It is very sensitive to the change in main interest rates in the country since construction requires bank loans. These values are subject to seasonal change due to the nature of the realty market. The construction process depends directly on the welfare of the population. Consequently, a rise in construction volumes signifies the improvement of the welfare and strong economy. The influence on the market is limited. A rise in the value positively influences the national currency rate. The value is published on the 3rd week of every month at 08:30EST (New York) simultaneously with the indicator

Industrial Production

Industrial production is one of the main indicators reflecting the state of the national economy. The index shows the level of the industrial production and public utilities volume change across the country. The value is published in the middle of every month at 09:15EST (New York). The influence on the market is considerable. A rise in the value leads to a rise of the national currency.

International Trade (Trade Balance)

The trade balance represents the ratio of the total cost of the goods exported from the country and the total cost of the goods imported into the country. It is essentially the difference between the export and import costs. If the total cost of exported goods exceeds the total cost of imported ones, the trade balance is active (positive). However, if the imports exceed the exports,the trade balance is passive (negative). A positive balance (or the negative balance fall in value) is a favorable factor for a rise of the national currency. The influence on the market is significant. The value is published on the 3rd week of every month (usually on Thursdays) at 08:30EST (New York).

Jobless Claims (Initial Claims)

Jobless claims show the weekly change in the unemployment benefit claims. This value is published every week on Thursday at 08:30 EST (New York). These figures do not always reflect the real picture of the events. Sometimes they might get distorted by short-term factors such as federal or local public holidays. This indicator can give an idea of the next Nonfarm payrolls indicator value. For example, if during the month the value of the Jobless Claims indicator is steadily decreasing, it is highly probable that the value of the Nonfarm payrolls indicator will be high. Its influence on the market is limited. A decrease in the jobless claims number is a favorable factor for the dollar rise.

Leading Indicators Index

This is the average weighted index of such indicators as factory orders, jobless claims, M money supply, the average work week, building permits, prices for the main shares, durable goods orders, and consumer confidence index. It is believed that the index characterizes the development of the economy during the next 6 months. There is also an empirical rule: if the indicator value has been in the negative for three months running, the economy of the country is slowing down. The influence on the market is limited. The limited influence can be explained by the publishing of the index value a month after the calculation period when nearly all main indicators have already been published. A rise in the value entails the dollar rise. The value is published as a rule early every month at 10:00 EST (New York).

Michigan Consumer Sentiment Index

This index represents the results of consumers' poll about their confidence in the current economic situation. The poll is conducted by the staff of Michigan University, US. The report is published twice a month: on the second week (usually on Friday) about the 15th of the report month (preliminary) and two weeks later (final). It is published at 10:00 EST (New York). This indicator is nothing else than the reflection of the consumers' wish to spend their money. The influence on the market is limited. A rise in the value of this index brings about the dollar rise.

NAPM Index (National Association of Purchasing Managers' Index)

The NAPM Index represents the results of the poll of purchase managers in the industrial sphere. This index is used to estimate changes in the new industrial orders field, the volumes of industrial production, employment and also stocks and the suppliers speed. Figures below 45 to 50 indicate a slowdown in the economic development. The value of this index is often influenced by psychological factors rather than the real situation. When calculating the index, California is not included. Since the volume of industrial production is not automatically a source of consumer demand, this indicator should be approached cautiously. Its value is published on the first business day of every month at 10:00 EST (New York). The influence on the market is limited. A rise in the value means a rise in the value of the dollar.

Nonfarm Payroll

The Nonfarm Payroll represents the number of jobs created in non-agricultural industries during the month. Payroll is the sheet according to which salaries are given to workers. It is a very strong indicator showing the employment change in the country. A rise of this index characterizes a rise in employment and brings about a rise in the dollar rate. It is called 'the indicator that moves markets'. There is an empirical rule that a 200,000 per month rise is equal to a 3% rise in the GDP. It is usually published on the first business day of every month at 08:30 EST (New York).

Philadelphia Fed Index

This is the index of the business activity of the Federal Reserve Bank in Philadelphia. It represents the results of a poll of manufacturers in Philadelphia about their attitude toward the current economic situation. Figures below zero indicate economic slowdown. Its value is published on the 3rd Thursday of every month at 10:00 EST (New York). The influence on the market is limited. It is closely watched as this index is published before NAPM and can give an idea of the future business activity indicator on the national level. A rise in the index value leads to the dollar rise.

Producer Price Index (PPI)

It determines the manufactured industrial goods 'basket'. Before 1978 it had been called the Wholesale Price Index. This index consists of two parts: enter prices (semimanufactures, componentry, etc.) and production exit prices (ready products). The exit price includes the workforce and gives an idea of inflation that is associated with the workforce price change. The produced price index is considered more trustworthy if it does not take into account food and power industries. When calculating the index, prices for imported goods and services are not considered. The influence on the market is high. When the main interest rates rise is expected, a rise in the value leads to a rise in the value of the dollar. It is usually published on the next week after the publishing of the Nonfarm payrolls at 08:30 EST (New York).

Productivity

This index reflects the change in the released products volume per worker. Productivity is an indicator which is very important for the economic situation analysis. The influence on the market is considerable. However, it must be closely watched as it can be misleading at times. For example, if the number of people employed in production during stagnation is decreasing, the productivity rises. The same can occur during strikes, etc. A rise in the value is a positive factor for the national economy development and results in a rise in the value of the dollar. Its value is published quarterly before the 10th of the month of publishing at 08:30 EST (New York).

Retail Sales

The index shows a change in the retail sales volume. It characterizes the level of consumer spending and demand. This indicator is subdivided into 'car sales' and the 'rest sales'. As the number of sold cars is a very volatile figure, the part of the indicator that does not take car sales into account is far more reliable. A rise in retail sales volume is a positive factor for the development of the national economy and leads to a rise of the national currency. It is published in the middle of every month at 08:30 EST (New York). The influence on the market is limited, especially in the long run.

Unemployment Rate

The unemployment rate shows the percentage of the unemployed against the total population capable of working. It is published simultaneously with the Nonfarm Payrolls indicator. The influence on the market is strong. Usually the unemployment rate is analyzed in the context of the figures reflected by the Nonfarm Payroll indicator value. For instance, a rise in the value of the Nonfarm Payrolls indicator during the unemployment rise provides evidence of an increase in unemployment in agricultural industries. If an increase in the main interest rates is expected, the decrease in the value leads to a rise of the value of the dollar. It is usually published on the first Friday of every month at 08:30 EST (New York) simultaneously with the Nonfarm Payroll indicator.