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Chapter 21, Part I. Again about Fundamental Analysis Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Pipruit: Sir, it sounds awful…

    Commander in Pips: Really? I’ve never heard something like that from you… Come on, you tell that every time.

    Pipruit: Yeah, I know that you tell me every time – this is not as difficult as it sounds.​

    Commander in Pips: Ok, I have to agree with you, that fundamental analysis is more suitable to determining the overall future conditions of an economy, but not to predict tomorrow’s price action, or even for next month. It has some big gaps due the way information is provided – data releases and central banks announcements are not a MACD indicator, so this information is rather blurry. It gives such conclusions as “EUR could move higher if ECB will show continuation in rate increasing”, or “gradual unemployment decrease will lead to USD strength”.

    Still, there is such kind of analysis that is called “regression”. This is some equation that combines different fundamental factors. For instance, interest rates, GDP, unemployment and budget deficit – the number of parameters could be different. When you paste all that numbers into an equation, it could give you, for instance, a fair EUR/USD rate. If the fair rate is higher than current one – you make a decision to purchase EUR/USD, if lower – to sell EUR/USD. These kind of regression equations are usually create by statisticians and this is tough work to do. Still, this is a real and sharp application of fundamental analysis.
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