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The Fundamental Factors To Watch
We just have a quick question here from Kenny asking us what type of factors we need to consider on a weekly basis when we do our fundamental analysis and what type of events or factors should we be watching for on a weekly basis?
So, this question can actually be split into two parts. The first one can deal with the actual factors that we need to consider for our fundamental analysis and the second one can deal with expectations.
So, the type of factors that we need to consider for the various currency pairs are things like monetary policies, so in what type of cycle is the central bank in currently right now, are they expected to cut rates, hike rates, hold rates, are they neutral? And then also fiscal policy; are there any type of fiscal majors like planned tax cuts or planned spending for the government that can affect the economy overall and that can obviously effect the currency as well?
Then we also need to consider things like the intermarket analysis; so are there any major correlations we need to be aware of? So, think in terms of high beta and safe haven currencies as related back to risk sentiment or think of something like oil prices as it relates back to the Canadian Dollar.
Then we also have geopolitical considerations that we need to evaluate; are there any important factors to keep in mind?
For example, are there any trade deals, trade wars, negotiations, actual wars, etc? They can all influence the geopolitical side. And then we also have things like natural disasters to keep in mind, or pandemics that we need to incorporate to make sure that we are up to date with everything that’s happening around the world that can effect a particular economy and its currency. Now, that’s the first part, that’s the actual factors.
The second part deals with the expectations, right? So, if you had to go through all of those things for every one of them, for each one of the major currencies on a weekly basis, it’ll take you a very, very long time to do that.
So, as part of the Forex Source terminal, our analysis and commentary has basically been designed to do most of that heavy lifting for you already. That is why we have reports in the Currency Research section, for example.
We have the weekly Top Trading Opportunities report that basically goes through the main themes that we see having the biggest impact in the week ahead.
We also have the fundamental drivers report that basically gives you the rundown, the bias for each one of the majors as well as the reasoning for why we have that particular bias. And then we also have in the terminal on a daily basis, we have the Current Daily Sentiment Drivers report, so that’ll give you an update on the major currencies, the latest developments, the future sentiment shifts, as well as the primary drivers.
Now, the reason why these reports are so helpful is that it not only shows you what is driving each currency right now, but more importantly, what is expected to drive it going forward, right, which will basically save you lots and lots of time, lots of analysis, because your attention will only be on the things that really matter for that particular currency at any given time.
So, for example, under normal circumstances, something like, let’s take inflation numbers for today. Something like inflation numbers is usually very important, but if you knew that the central bank as well as the market is not really going to be paying much attention to CPI data right now, then that gives you one less thing to really prepare and worry for for the week ahead.
If you know, however, that due to previous comments made by the central bank that CPI is going to be very, very important, closely watched, then that is an event that you want to spend a lot more time on, make sure that you do additional research for and make sure that you’re prepared for it. That is why expectations are always so very important when you conduct your analysis and your research.
So don’t only look at the factors we mentioned earlier in a vacuum, but look at them through the lens of what the market is currently expecting from that event and what the market is currently expecting for that particular currency.
That’ll show you what you need to focus on right now and what you can safely ignore in terms of upcoming events. Now, knowing the expectations will not only help you to trade into events, but it can also help you, of course, to be better positioned to take advantage of events after they’ve happened.
So, for example, let’s take CPI again, right? If you know that the central bank as well as the market won’t be paying attention to CPI data right now, then even a very big or significant miss or beat might not be really that market-moving. It might not be something that you need to pay attention to if it’s not something that’s really gonna change the market’s mind right now.
But, of course, if you know that data is gonna be scrutinized, then even the smallest deviation might be a lot more market-moving for that particular event based on what the expectations are going into it.
So, I hope that helps you out there, Kenny, between the various factors as well as the importance of also incorporating the expectations into that. Any other questions, don’t hesitate, as always, to let us know.