Patrick Anderson

The U.S. Dollar, more than any other currency, is used as a reserve currency by countries around the world. It therefore has the greatest influence on the entire forex market. When the U.S. Economy exhibits strong fundamentals and growth, the U.S. dollar will gain strength creating demand for U.S. Dollars. For currency pairs in which the U.S. Dollar is the base currency (i.e. USDJPY), the rate decreases as the U.S. Dollar gets stronger. In this case, it takes more JPY to buy 1 U.S. Dollar. Consequently, in the fractional rate, a larger denominator (JPY) means a smaller fraction which translates to a lower rate. For currency pairs in which the U.S. Dollar is the quoted currency (i.e. EURUSD), the opposite occurs. the rate increases as the U.S. Dollar gets stronger. In the case of the EURUSD, it will take less U.S. Dollars to buy 1 EUR. The denominator of the pair (USD) decreases making it a larger fraction, and therefor a higher rate. This effect happens to all currency pairs either directly, or indirectly as in the case od cross-currency pairs.

Price-to-Earnings Ratio

What are Financial Ratios

What is an Opening Price

How are Major-Currency pairs different from Cross-Currency pairs?

Fundamental analysis refers to the comprehensive analysis typically performed by investors of the underlying entity of a security in order to make an informed and rational decision on the merits of an investment. Fundamental data is published periodically as opposed to daily or in real-time. Consequently, fundamental analysis is typically used to analyze the long-term outlook of a traded security. In the case of a stock, investors analyze a corporation’s fundamental data including earnings-per-share, profitability ratios, revenues, costs, market share, etc. in order to find securities that are priced below market value, and therefore perceived to be a sound investment. In the case of the forex market, investors analyze the fundamental data metrics of the underlying economies of the currency pair being considered for a long-perm position. These metrics analyzed may include Gross Domestic Product (GDP), interest rates, unemployment rates, trade deficits, budget deficits, political factors, etc. A forex investor will take a long or short position based on the long-term outlook derived from the economy’s fundamentals.

What constitutes a Rally?

Price quotes for tradable securities consist of two prices, a bid price and an ask price (sometimes referred to as the offer price). A bid price is the price a broker is willing to pay for a security. The trader (customer) therefore sells securities at the bid price. The opposite of the bid is the ask price, which is the price at which a broker is willing to sell shares. This is the price that traders (customers) buy the securities from the broker. The bid/ask prices are always quoted together, and the bid price is always the lower of the two. The use of bid and ask prices is a fundamental part of the market system, as it details the exact amount that you could buy or sell at any point in time. The current market price is not the price for which you can purchase or sell a security, but the price at which shares last traded.

What is a Currency Pair?