Fundamental Analysis (lesson12)

At this point in the program, you may be felling little overwhelmed with all the information that is been presented.
The main reason we include this information is that there are some concepts and words you will be coming across every day as you conduct news and research.
You should have already formed the routine of personal research using the resources you will receive in this part of the course.
Reading list contains the extremely useful sites that contain vital information you will need as part of your trading routine.

The purpose of this section is to take you through that routine and all of the tools professionals use.
Trading firms themselves pay thousands of pounds each month to access this tools and if you are part of the trading floor you receive access to this as part of your desk. If you decide to trade independently then you will need some of this tools to stay tuned into the markets and what the central banks are looking at also.
So let's begin with the general overview of research and analysis in the first place.

It is important to remember the central bank really want the market to know and understand their plans for future monetary policy, the reason for this is because they are focused on maintaining price stability and one of the best ways to ensure this is, is to reduce the amount of surprises the market experience so it's close to 0 as possible.
An unknown something is the more reaction will get.

In 2015, SNB unexpectedly cancels their floor on EUR/CHF currency pair causing the pair fall 40% at one stage.
This move wiped out brokers hedge funds and trading funds in seconds as a scale of the move caught many off guard.
The reason it was so analysis was because it was totally unexpected, just 2 days earlier the bank themselves said they would defend the floor no mather what.
In another example the RBA cut its main interest rate at the beginning of 2015, this can be expected to cause currency fall hard however because of the speculation of coming cut weeks to an upcoming event the price of the AUD/USD rallied in the days following the cut.

So as you can see the information the market already has plays the major role in the reaction when events happen.
Central bank knows this so they will do their very best to provide forward guidance, wich means they will tell the market as clearly as possible its intentions and timeframe for caring those intentions out.
With this in mind, the first place you research and analysis should take you is the central banks themselves .
They realease statements and forecast regulary by their websites , very often traders will focuss heavly on certain words within the central bank release because this words and phrases are the things changed and placed when a policy is about to change.
For example: around 2013- 2014 the Federal Reserve stated that they will likely wait for considerable time before raising its interest rate, traders in markets new that when economic conditions improve the FED will be forced to remove that word from statement, sure enough few months later they removed that phrase and instead stated they will be patient in beginning to normalise monetary policy.
This change may seem small but in the markets, this is the very subtle step to rate hikes, without being so dramatic and cause chaos it the markets.
This is a very good example how central bank provide its forward guidance, communicates the market in tiny little steps any changes its wants to make.

This ensures the markets are very often expecting the moves before they happen and limits the reaction significantly.
By switching to the word "patient" the FED effectively allow themselves more flexibility when rate hike would come and communicates the market that it will happen only if data supported such a move.
This is an example of word games played by central banks around the world.
Very often you will not worry to figure out wich words are important or what they mean because that is a job of analysts to conduct this information for us, so as traders we have a clear picture.

Another concept is the central bank watchers, this very usually journalist is monitoring and studying central bank members and try to decide what central bank may do next.
This journalist usually has very close relationship with central bank members wish sometimes results in leaks happening, wich results in writing article about the next move.
Because this occurs very frequently the market pays very close attention to this watcher and anything they write usually gets significants market reaction.
Very often the watcher will speculate when or how the central bank will adjust its interest rate wich, in turn, is traded on the markets in central bank risk event.
The first step to understanding the central bank is to look at what they themselves say in their speeches and press conferences.
All of this information is freely available on the central bank websites and they are easy to find online.
When you got a good idea of where the bank is and how are they viewing economy the next step is to get a good solid understanding of how the market is interpreting this as a whole.
The simplest way to do this is by following analysts and economists and interpret it too easy to understand actionable information.
This anayists tend to work in a house of large banks and brokerages and post their research on blogs and social media and news feeds, so if you follow this thing you will be updated reguraly.
The job of this analysts is to break all of this information and express it in a way so traders can use it and position themselves in the market.

All major trading firms have the team of analysts working to decode and interpret this information and deliver it to trading team.
Following this research you are geting the exact same edge as all other professionals.
So where do you access this information?
Aside from the resources, I provide the best sources are dow jones, Reuters, Bloomberg, and MNI.
All of this companies have services that professional traders subscribe to in order to access analyst research.
There are also free resources that many professionals use including forexlive that give the detailed analysis.
While trading with me you will have access from this type of research from my service in the same way as any other professional firm, but when you decide to go alone you need to locate and identify your favorite resources.
The guide of all of this is to identify on what the central bank is focused on and what actions they are likely to take next, we do this by monitoring the same indicators, absorbing the research made by analysts and going into conclusion about a most likely move in monetary policy.
By staying tuned into this big picture of each central bank you will know wich way each currency should be trending long term wich in turn will help you whether or not current moves are on or against the trend.
Even the trading smaller intraday moves that may be completely unrelated with longer term picture your analysis will be improved by having this big picture understanding of what is going on in the markets as a whole.

Trader Alen