Introduction

1. Why are Fundamentals important?

2. The Four Pillars of Fundamental Analysis.

3. The World Economic Data.

4. The Sentiment of the World Economy.

5. The Interest Rate Differential.

 Why are Fundamentals important?

1. Fundamental analysis can be an important tool for traders because it helps them to make informed
decisions about which assets to buy or sell based on their assessment of the underlying value of the
asset.

2. In addition to helping traders make informed decisions about which assets to buy or sell,
fundamental analysis can also be useful in managing risk.

3. Fundamentals changes can last for a very long time.

4. One reason why it can be beneficial to combine fundamental analysis with technical analysis when
trading is that these two approaches can provide complementary insights and help traders to make
more informed decisions.

Fundamentals chooses the direction while the technicals define the entries and exits.
 The Four Pillars of Fundamental Analysis.

1. Economic Growth: This involves analyzing indicators such as gross domestic product (GDP),
employment, and inflation to assess the overall health and growth potential of an economy.

2. Monetary Policy: This involves evaluating the actions and decisions of central banks, such as the
Federal Reserve in the United States, and how they may impact the economy and financial markets.

3. Fiscal Policy: This involves analyzing the government's budget and spending decisions and how they
may impact the economy and financial markets.

4. Geopolitical Events: Significant political, economic, or social events that have the potential to
significantly impact the global or regional political landscape and economic conditions.
(wars, elections, natural disasters, terrorist attacks, and other major political events).
The World Economic Data.
 1. Growth Domestic Product (GDP)
Gross domestic product (GDP) is a measure of the size and health of an
economy. It is defined as the total value of all goods and services produced
within a country in a given year.

1. Consumption: This is the value of goods and services purchased by

households for personal use, such as food, housing, and healthcare.

2. Investment: This is the value of goods and services produced for future use,
such as business investment in capital goods (e.g., machines, factories, and
buildings) and residential investment in housing.

3. Government spending: This is the value of goods and services produced by

the government, such as national defense, education, and infrastructure.

4. Net exports: This is the value of goods and services produced within the
country and sold to foreign buyers (exports) minus the value of goods and
services produced by foreign firms and sold to domestic buyers (imports).
 2. Unemployment Rates
1. Unemployment rate is a measure of the percentage of the labor force that is unemployed but actively seeking
employment and willing to work.

2. Calculated by dividing the number of unemployed individuals by the total number of individuals in the labor force,
which includes both the employed and the unemployed.

3. The unemployment rate is an important economic indicator that reflects the health of the labor market and the overall
economy.

4. The unemployment rate can vary over time, depending on a variety of factors such as economic conditions,
technological change, and government policies.

When unemployment is low, it can indicate that economic conditions are strong, which can attribute to a stronger currency.

When unemployment is high, it can indicate that economic conditions are poor, which can attribute to a weaker currency.
 3. Interest Rates
1. Interest rates are the cost of borrowing money or the rate of return on an investment.

Imagine you are borrowing $100,000 for a home mortgage at an interest rate of 3.50% per year. If you choose a 30-year fixed-rate mortgage, your monthly
payment would be approximately $449. Now, let's say that the interest rate on mortgages increases to 4.50% per year. If you take out a 30-year fixed-rate
mortgage at this higher interest rate, your monthly payment would increase to approximately $530, an increase of about $81 per month.

2. Interest rates can vary depending on the type of loan or investment, the term of the loan or investment, and
the creditworthiness of the borrower or investor.

3. Interest rates can be set by central banks.

4. Interest rates can affect the cost of borrowing for consumers and businesses, and can also influence the
value of a currency.

5. Interest rates can be used as a tool by central banks to help manage inflation and stimulate economic
growth.
 3. Inflation Rates (CPI)
1. Inflation is the rate at which the general level of prices for goods and
services is rising, and, subsequently, purchasing power is falling.
Central banks attempt to limit inflation and avoid deflation in order to
keep the economy running smoothly.

2. Inflation is usually measured by the consumer price index (CPI), which

tracks the prices of a basket of goods and services consumed by
households.

3. Inflation can be caused by a variety of factors, such as an increase in

demand for goods and services, an increase in production costs, or an
increase in the money supply.

4. High inflation can be a problem because it erodes the purchasing

power of money, making it difficult for people to afford necessities.
 4. Central Bank Policies
1. Central banks are responsible for managing a country's monetary
policy, which includes setting interest rates and controlling the money
supply.

2. Central banks use a variety of tools, such as adjusting interest rates, to

try to achieve their monetary policy objectives, which may include
maintaining price stability, promoting economic growth, and supporting
financial stability.

3. Central banks are typically independent of the government and operate

in a transparent and accountable manner, although the specific
structure and governance of central banks can vary among countries.

4. Central bank policies can have a significant impact on the economy

and can affect a variety of factors, such as inflation, employment, and
the value of the currency.
 5. Geo Political & Economic Events
1. Geopolitical events can include conflicts, wars, revolutions, political movements, natural disasters, and economic
crises, among others.

2. Geopolitical events can have significant consequences for the countries or regions involved,
as well as for the international community.

3. Geopolitical events can impact economic and financial markets,

as well as the security and stability of countries and regions.

4. Geopolitical events can be influenced by a variety of factors, such as cultural, historical, economic, and political
considerations.

5. Geopolitical events can be difficult to predict and can have long-term impacts on the global political landscape.
 The Sentiment of the World Economy

1. "Risk on" refers to a situation where investors are more willing to take on risk, often due to favorable economic
conditions or a perception of lower risk in the market. In a risk-on environment, investors may be more likely to
invest in riskier assets, such as stocks or high-yield bonds, and may be less concerned about the potential for
losses.

2. "Risk off" refers to a situation where investors are less willing to take on risk, often due to unfavorable economic
conditions or a perception of higher risk in the market. In a risk-off environment, investors may be more likely to
invest in safer assets, such as cash or government bonds, and may be more concerned about the potential for
losses.
 The Interest Rate Differential
1. When the interest rate in one country is higher than the interest rate in another country, it can make the currency of
the country with the higher interest rate more attractive to investors, as they can earn a higher return on their
investments. This can lead to an appreciation of the currency, which can make it more valuable compared to other
currencies.

2. When the interest rate in one country is lower than the interest rate in another country, it can make the currency of
the country with the lower interest rate less attractive to investors. This can lead to a depreciation of the currency,
which can make it less valuable compared to other currencies.

3. The interest rate differential can also affect the demand for different currency pairs. For example, if the interest rate
differential between the U.S. dollar and the Japanese yen is favorable for the U.S. dollar, it may lead to an increase
in demand for the USD/JPY currency pair.

It's important to note that the interest rate differential is just one factor that can affect the value of a currency pair,
and there are many other economic and market factors that can also influence forex prices.
 The Interest Rate Differential
You can calculate the interest rate differential by subtracting the interest rate of one country from the interest rate of another country.

For example, if the interest rate in Country A is 2% and the interest rate in Country B is 4%, the interest rate differential would be:

Interest rate differential = 4% - 2% = 2%

This means that the interest rate in Country B is 2% higher than the interest rate in Country A.

It's important to note that the interest rate differential can change over time as interest rates in the two countries may fluctuate.
Additionally, the interest rate differential can be expressed in a variety of ways, such as percentage points or basis points.

For example, if the interest rate in Country A is 2.50% and the interest rate in Country B is 4.50%, the interest rate differential could be
expressed as follows:

● In percentage points: 4.50% - 2.50% = 2.00%

● In basis points: (4.50% - 2.50%) x 100 = 200 basis points
The Interest Rate Differential