{"id":218640,"date":"2023-04-07T12:19:37","date_gmt":"2023-04-07T11:19:37","guid":{"rendered":"https:\/\/www.forexmentorpro.com\/blog\/?p=218640"},"modified":"2023-04-07T12:19:37","modified_gmt":"2023-04-07T11:19:37","slug":"approaching-fundamental-analysis","status":"publish","type":"post","link":"https:\/\/www.forexmentorpro.com\/blog\/approaching-fundamental-analysis\/","title":{"rendered":"Approaching fundamental analysis"},"content":{"rendered":"
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Hi Everyone,<\/div>\n<\/article>\n<\/div>\n<\/div>\n
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One of our long term members has been focusing on improving his fundamental analysis. This week he shared with us a new approach he will be using to improve it. Below is the article from James in his own words.<\/div>\n
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I feel that I need a more structured approach to how I plan for the week. Currently it doesn\u2019t have enough consistency – and I\u2019m potentially missing important bits of information. So, in order to bring this structure and help my own thinking, I\u2019m going to trial a new structure which focuses on the fundamentals of macro.<\/p>\n

The main drivers of price can be split up into Global and Domestic. It is important to look at the wider picture and then narrow down – just like how technicals start at a higher timeframe and work down; my fundamental analysis will start with global drivers and then drop down to more granular domestic drivers. I\u2019ll explain a little about what they are but how I’m going to track and report on them to help shape my views for the week ahead and give clues\/confluence on potential price moves for the week ahead. There are a lot of overlaps and interdependencies between the factors so it\u2019s not as straightforward but I think this will be a good skeleton.<\/p>\n

Before I get into it, a lot of the structure and underlying approach has been shaped by The Art of Currency Trading by Brent Donnelly – which I am re-reading AGAIN. I have found it really useful for the foundational knowledge and I think it is both a great starter book and a great reference book to help during sticking points (as well as AlphaTrader – The second book). It wouldn\u2019t feel right if I didn\u2019t give the props and credit where it was due.<\/p>\n

It is important to understand that it\u2019s not just the absolute level, but the change from the previous release which is important. A value close to it\u2019s all time highs may not signal ongoing strength if the rate of change has significantly decreased over the past 4 releases. It could be a turning point.<\/p>\n

Global Drivers:<\/u><\/b><\/p>\n

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  1. Global Growth<\/u><\/b><\/li>\n<\/ol>\n

    Certain currencies do well in high growth environments – certain countries whose economy is driven by exports will particularly do well in times of high global growth and vice versa. This will look at generic global growth and generic global contraction.<\/p>\n

    How I\u2019m going to monitor this:<\/p>\n

    Global PMI indicators and reports<\/b>\u00a0– This is survey data from around the world about manufacturing and services outlook.
    \nI\u2019ll be taking the data from:\u00a0https:\/\/www.pmi.spglobal.com\/<\/a><\/p>\n

    This is a good site and gives a weekly look ahead for all things PMI.<\/p>\n

    Unemployment Data<\/b><\/p>\n

    In order to fuel expansion and growth, companies will need to hire more staff – using the US, Eurozone and Chinese unemployment data will give good clues about growth. The thesis is Unemployment level will be negatively correlated with growth. This change and trend is important here.
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    \nChile Copper Production<\/b><\/p>\n

    Chile is the biggest exporter of Copper. Usage of copper increases during high growth times as it is used extensively in the modern world. It is used in everything from the wiring in new infrastructure through to high value tech items that are more purchased during the good times.<\/p>\n

    China PMI\u2019s<\/b><\/p>\n

    The Manufacturing Purchasing Managers Index is based on five individual indexes with the following weights: New Orders (30 percent), Output (25 percent), Employment (20 percent), Suppliers\u2019 Delivery Times (15 percent) and Stock of Items Purchased (10 percent)<\/p>\n

    China Services PMI: The index tracks variables such as sales, employment, inventories and prices.<\/p>\n

    With China being a major global exporter, if the surveys show expansion then global growth may be high.<\/p>\n

    South Korean Exports<\/b><\/p>\n

    South Korea publishes data earliest and has a high correlation to the export growth of other Asian countries which is an indicator of global demand\/growth.<\/p>\n

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    1. Commodity Prices<\/u><\/b><\/li>\n<\/ol>\n

      Commodity prices play a big impact in the movement of some currencies. Mainly for me, the CAD, AUD and NZD.<\/p>\n

      I\u2019ll be tracking the prices of oil, nat gas, coal, copper, gold, silver and dairy. Movement in these commodities may hint at the relevant exporters currency gaining in strength (and vice versa).<\/p>\n

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      1. Risk Aversion<\/u><\/b><\/li>\n<\/ol>\n

        Are we moving into a risk on or risk off period? This can influence the money flows into currencies from equities but also into certain currencies. The tradition safe haven currencies such as CHF, JPY and USD.<\/p>\n

        I\u2019ll look at reporting on VIX, S&P, Hang Seng 500, DXY, STOXX 600<\/p>\n

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        1. Geopolitics<\/u><\/b><\/li>\n<\/ol>\n

          There is no real indicator for this – this is just a quick focus on the news.<\/p>\n