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Forex Fundamental Analysis: 3 Factors that Influence Currency Values

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When trading currencies, you don’t solely rely on technical analysis. Well, you can do that. But it won’t give you the bird’s eye view of the whole situation. So having Meta Trader 4 some amount of forex fundamental analysis is a really good idea for your trades.

And once you dive into forex fundamental analysis, it’s important to take Funding Methods note of the factors that influence your currencies.

Many things affect money and you shouldn’t ignore them. Because, in the longer run, it’s better to see the full picture rather than just a corner of it.

Here are the factors that affect currency values:

Economic Growth

This can be one of the easiest fundamental factors to look at. It is safe to say that when consumers feel and believe that the economy is strong right now, they feel happy and safe. And they spend their money.

Of course, businesses will get the money and spend it too, generating some healthy tax revenue for the government, which will jump on the board and will spend the money too.

That means almost everyone is spending, and this has a positive impact on the economy.

Now, weak economies are typically populated by consumers who spend little to not at all. This means that the businesses in that economy are not earning money and so they aren’t spending, too. The government is the only still spending.

And, if you haven’t, noticed, all these things involve money, which is the currency of that country. It’s always important to check the economy of the country the currency of which is one of your investments.

Capital Flows

When we say capital flows, we refer to the amount of money flowing into and out of a country because f capital investment buying and selling.

You ought to keep track of the capital flow balance, which can be either positive or negative. If a country has a positive capital flow balance, there are more foreign investments coming into the country than investments heading out of the country. If it’s a negative capital flow balance, there are more investments fleeing the country than otherwise.

When there are more investments coming into the country, demand soars for that country’s currency with foreign investors selling their currency to buy the local currency. And ultimately, this pushes the value of that currency higher and higher.

Trade Flows and Trade Balance

Trade balance is also known as the balance of trade and net exports. It measures the ratio of exports to imports for a given economy.  It also demonstrates the demand for that country’s good and services, showing the demand for the currency as well.

Bear in mind that if the exports are higher than the imports, a trade surplus exists and the trade balance is positive. On the flip side, if the imports are higher than the exports, a trade deficit takes place, and the trade balance is negative.

And when trade deficits happen, they can push a currency price down when compared to other currencies.

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