In fact, I didn’t look at the fundamentals before. I always felt that it was enough to analyze the technology at some point.
However, since I recently studied quantification, I found that it is still necessary to study the fundamentals.
In particular, multi-factor models take fundamentals into account. After all, there is no one-size-fits-all quantitative strategy.
For example, the small-market capitalization rotation strategy of previous years does not work in the Hong Kong stock market.
Therefore, I have systematically learned a little bit about this aspect recently.
Take a quick note. Improve memory and add homework. That’s it.
PS: Mainly the story I conceived this week is stuck. Next week's breakthrough will still be about the story.
In foreign exchange, fundamental analysis involves studying a country's economy and weighing its impact on the value of a currency. Understanding the relationship between the economy and currencies and currency values ??helps traders determine, to some extent, market demand and the likely appreciation/depreciation of a particular currency.
If a country's economy is performing strongly, investors may look for investment opportunities in that country. The country's currency may also increase in value.
A strong economy is more likely to bring business opportunities, such as huge stimulus to real estate, the stock market, or other business investments.
When economic reports show a strong economy, domestic and foreign investors - private or corporate - rush to seize investment opportunities in the country.
In order to invest in a country, investors need to use the national currency. If the economy is forecast to greatly stimulate investment enthusiasm, it will lead to an increase in the demand for the domestic currency and an appreciation of the currency.
If the economy is booming in a specific industry, such as manufacturing or financial services, it may result in manufactured products or services being sold abroad.
In order to purchase these goods and services, customers must convert their domestic currency into the local currency of the country where the producer is located. The greater the demand for these goods and services, the greater the demand for the local currency, causing the currency to appreciate in value.
This is the common meaning behind the news that the Federal Reserve has raised interest rates and the European Central Bank has raised interest rates.
The impact of interest rates on currency:
High interest rates can attract investment. Rising interest rates lead to an increase in currency demand and currency appreciation.
First, high interest rates represent a strong economy, and investors are more likely to invest in a booming economic environment. Therefore, the demand for the domestic currency may rise, causing the currency to appreciate in value.
Higher interest rates also mean increased interest on deposits in bank accounts. Investors may invest in countries with higher interest rates because the interest on their deposits may also increase.
An increase in interest rates leads to an increase in the country's demand for currency and an increase in the value of the currency (under normal economic circumstances).
Inflation measures how much the prices of goods and services have increased over a specified period of time. A higher inflation rate means prices are rising rapidly. If inflation falls, prices for goods and services still tend to rise, but at a slower pace.
If the inflation rate rises, people's disposable income for consumption shrinks rapidly. This has a negative impact on the economy and currency.
Inflation measures how much prices are rising or falling. If inflation falls, prices still rise, but at a slower pace.
However, if a country experiences deflation, that is, a real regression in prices, investors can also use it as an indicator of the country's economic downturn. Therefore, it will also have an adverse impact on currency value.
"Hawk" and "dov" refer to the central bank's attitude towards the balance between inflation and economic growth.
If a central bank is opposed to inflation, it is considered hawkish and interest rates are more likely to rise. If a central bank is more concerned about economic growth, it is considered dovish and interest rates are more likely to be cut.
Worried about inflation, hawks raised interest rates.
Worried about economic growth, doves cut interest rates.
For example, the current Grandma Yellen is a capital dove.
A low unemployment rate indicates a strong economy and increased demand for money.
The unemployment rate estimates the percentage of the labor force that is not employed and actively looking for employment opportunities.
If reports show low unemployment, investors will think the country's economy is doing well. Therefore, they may look for investment opportunities in the local country, causing the currency to appreciate. If a country's unemployment rate rises, investors will perceive that country's economic performance as weak and look to other countries, causing the currency to depreciate.
GDP is used to estimate a country’s final production of goods and services.
GDP is used to estimate a country's total consumer spending, investment spending, international trade spending, and government spending during a specific period. It is mainly used to estimate the final production of goods and services in the entire country. GDP is usually calculated on a quarterly or annual basis.
If the GDP growth rate is high, it means that the economy is developing steadily and the currency may appreciate. If GDP growth is low, it indicates weak economic performance and the currency may depreciate.
Growth prospects provide guidance to investors and traders by estimating future GDP.
If growth prospects are fragile, the currency depreciates; if growth prospects are strong, the currency appreciates.
Government agencies, investment banks and economic think tanks have their own opinions on the growth prospects – their estimates of future GDP.
These estimates provide guidance for investors and traders to pay attention to the future performance of the country's economy in a timely manner. If the estimate is released publicly, it could also affect the monetary value. Typically, they estimate GDP one to two years into the future. If growth prospects are fragile, it will adversely affect currency values. If growth prospects are strong, this has a positive impact on currency values.
Strong retail sales mean consumers have confidence in the economy and have more money to spend, which is positive for the currency.
Consumer spending is the bulk of economic spending. Even if it's not a majority, it's still basically a large percentage, so retail sales numbers are an important indicator. Retail sales are used to estimate total consumer spending in a given month by various industries, such as electronics retailers, restaurants, car dealers, etc.
The increase in retail sales indicates that consumers are confident in the economy and can use the extra income to purchase goods and services. Therefore, rising retail sales are bullish for the currency.
The rise and fall of housing sales is inseparable from consumer confidence, mortgage interest rates and the overall strength of the economy. Therefore, a solid real estate sector is a boost to the currency.
The real estate market is one of the most obvious signals of strong economic growth. Home sales are estimated by:
Growth and decline in these home sales are closely tied to consumer confidence, mortgage rates and the overall strength of the economy. Housing data is a clear signal of economic strength and has a boost for the currency. GDP is used to estimate a country's final production of goods and services.
GDP is used to estimate a country's total consumer spending, investment spending, international trade spending, and government spending during a specific period. It is mainly used to estimate the final production of goods and services in the entire country. GDP is usually calculated on a quarterly or annual basis.
If the GDP growth rate is high, it means that the economy is developing steadily and the currency may appreciate. If GDP growth is low, it indicates weak economic performance and the currency may depreciate.
The Trade Balance Report reports on a country's exports and imports during a specified period. Every country will have a trade surplus or a trade deficit. A trade deficit means that the import volume is greater than the export volume, and a trade surplus means that the export volume is greater than the import volume.
A trade deficit causes a currency to depreciate because more foreign goods are imported than domestic goods are exported. In order to trade, the domestic currency must be exchanged for the currency of the country where the goods originate.
A trade surplus creates a favorable situation because foreign currency must be converted into domestic currency to purchase domestic goods and services, thereby increasing demand for domestic currency.
The Trade Balance report provides detailed information about a country's import and export volumes during a specific period. A trade deficit creates a negative situation for the currency, while a trade surplus creates a positive situation for the currency.
Changes in the trade balance are also very important
When a trade deficit or surplus occurs, one of the key points that must be paid attention to is: if the last reported report data changes, it will also have a negative impact on the currency. Influence. If a country does run a trade deficit, the need to convert currency into foreign currency in order to purchase goods or services will also increase.
This means that an increase in the trade deficit has a greater impact on currency depreciation than the deficit itself. The opposite is true if a country's trade surplus increases.
This text will introduce how the monetary and fiscal policies of the government and central bank directly affect the currency value.
As with any other financial asset, currency value is determined by supply and demand. Therefore, the real money supply in the economy affects the value of money. Money supply refers to the stock of money available in the economy. If the money supply increases, the amount of investment and consumption increases, thereby promoting economic development - if the supply decreases, this has a negative effect.
Money supply refers to the stock of money available in the economy. Too much money causes inflation to rise, while too little money hinders development.
Controlling money supply growth is crucial. Too much money causes inflation to rise and harms economic development, while too little money causes economic stagnation. Policymakers must strike a balance between growth and inflation - using tight or loose monetary policy.
Tightening monetary policy refers to the central bank's efforts to reduce the money supply, while loose monetary policy refers to the central bank's efforts to increase the money supply.
Two common ways to control the money supply are to adjust interest rates or minimum reserve requirements for banks.
To limit the amount of money in the economy, central banks may raise interest rates. This can effectively control the loan amount of consumers or businesses. An increase in interest rates means an increase in loan costs. Less credit in the economy means less money for consumption and investment, which reduces demand for goods and services. It is also helpful to further control inflation, because when the demand for goods and services decreases, prices rise slowly and sometimes may even fall.
Rising interest rates lead to higher loan costs and less investment and consumption funds in the economy.
In order to increase the stock of funds available in the economy, the central bank strives to lower interest rates, thereby reducing the cost of loans. Increased loans and consumer funds are conducive to economic development.
Tightening monetary policy may have a positive impact on the currency, as rising interest rates help attract new funds for economic development. That's because high interest rates generally indicate a strong economy, in which investors can earn greater returns on their bank deposits.
Lower interest rates lead to lower loan costs and an increase in investment and consumption funds in the economy.
Accommodative policies may have an adverse effect on the value of the currency because increasing the stock of funds may cause inflation. Doing so reduces the currency's spending power in the economy and devalues ??the currency. Low interest rates mean that in this economic environment, investors are getting a much lower return on their money. Investors look to other countries, causing currencies to depreciate.
Another way to control the money supply is to limit the amount of money banks use to lend to consumers and businesses. This is accomplished by setting minimum reserve requirements for banks.
At any given time, banks can only withdraw a fraction of their total assets in cash immediately. Other funds usually refer to most of the bank's funds, which can only be invested or loaned out through loans or mortgages.
The minimum deposit amount that can be withdrawn immediately is determined by the central bank - this is the so-called reserve requirement.
Raising bank reserve ratios causes banks to have less money to lend - effectively cutting the money supply. Lowering reserve requirements has the opposite effect, causing the money supply to increase.
If the central bank raises reserve requirements, banks will lend less money, effectively recycling the amount of money in the economy, thereby reducing the money supply.
Lowering reserve requirements causes the opposite effect: banks lend and invest more money, and the money supply in the economy increases.
This measure has the same impact on the economy as the bank's interest rate adjustment.
If bank reserve requirements are raised, lending funds will be restricted, which may ultimately lead to higher loan interest rates. However, rising interest rates are more advantageous for savers as they can earn greater returns on their savings.
This situation may lead to an appreciation of the currency, which may result in more money flowing into the economy due to an increase in interest rates. Likewise, lowering reserve requirements could have a negative impact on the currency, with interest rates lowered as banks work to increase lending.
Government expenditure refers to fiscal policy expenditure. Policymakers use fiscal policy to regulate taxes and spending to exert influence on the economy.
Government spending is funded through taxes or through the issuance of bonds, also known as government bonds. If a country spends more than it earns by borrowing from private investors, it is called a budget deficit.
Government expenditure refers to fiscal policy expenditure. This is an effective way to stimulate the economy and can also serve as a powerful tool when trading during recessions. If a country's fiscal policy is relatively loose, its currency may appreciate.
Government spending is often an effective way to stimulate economic development, either for specific projects (such as infrastructure construction and development) or for the recruitment of government employees.
Government spending can also be a powerful tool when trading during a recession, as the money injected into the economy has a stimulating effect. For example, government housing construction programs can benefit businesses and manufacturers that provide building materials.
If a country implements a loose fiscal policy, it will have a positive impact on the amount of investment funds and the currency may appreciate.
Market correlation price refers to the simultaneous fluctuation of prices in two or more markets. Correlations between markets can have positive effects: if the price of one asset rises, the price of another follows suit. Correlations between markets can also have adverse effects: if the price of one asset rises, the price of another falls.
The underlying reasons behind market correlations depend on different markets. Identifying these reasons will help traders reasonably infer future price movements.
It should be noted that if the broader economic environment experiences a shock or environmental change, such as a financial crisis, this market correlation may be broken.
The simplest way to understand the principle of market correlation is to consider the flow of funds between markets.
There is a positive link between the Australian dollar and the price of gold. This is because Australia is rich in gold and exports it to global markets. In order to purchase gold from Australian producers, buyers must first convert their domestic currency into Australian dollars.
If the price of gold rises, gold buyers must exchange more Australian dollars. As demand for shopping in Australian dollars increases, the Australian dollar appreciates relative to other currencies. This is the correlation between gold and the Australian dollar.
Under normal circumstances, there is an inverse relationship between the U.S. dollar and gold prices.
Under normal market conditions, U.S. investors seek to make money by investing in financial markets, such as bonds and stocks. USA.
This type of investment carries a certain amount of risk due to the potential for volatility and losses, but it can also bring significant gains.
While gold still retains its value during these times, investors have become accustomed to believing that investing in U.S. stocks can provide greater returns, leading to a reduction in gold purchases. As a result, money flows from the gold market to the U.S. stock market. U.S. stocks can only be purchased with U.S. dollars. Once the demand for U.S. stocks increases, the demand for U.S. dollars will also increase, causing the U.S. dollar to appreciate in value. This is the negative correlation between the U.S. dollar and gold prices.
In times of economic turmoil, investors may lose the desire to invest in risky assets, such as U.S. stocks or bonds, and strive to invest funds in safer assets, such as gold. Investors have sold off their risky assets and exchanged large amounts of U.S. dollars to buy gold from the global market. Now, demand for U.S. dollars has plummeted, while demand and prices for gold have increased simultaneously. As a result, the dollar depreciates and gold prices rise.
The normal correlation between markets is sometimes broken.
To illustrate, let’s revisit the correlation between the U.S. dollar and gold prices. It has been proven that during economic recession, investors and traders have turned their attention to gold, a safer investment method, and sold off their US dollar assets.
In an abnormal economic environment, market correlation is broken. For example, during a financial crisis, investors may look for safer investments in a variety of assets, breaking the normal correlation between assets.
However, under abnormal circumstances, such as during the financial crisis, this market behavior is gradually broken. The economy is in shambles, and investors are looking for safer investments in a variety of assets, including U.S. government bonds and gold. In order to purchase U.S. government bonds, one must exchange them for U.S. dollars, which appreciate as demand increases. Gold is a "safe haven" for investors and increases in value amid increased demand.
In this example, the dollar and gold increase in value at the same time, breaking the negative correlation between them.
Traders can use market correlation to infer future price changes in another market based on price changes in one market.
Take the relationship between the Australian dollar and gold prices as an example. It is known that under normal market conditions, there is a positive correlation between the two.
Assume that a number of negative reports related to the U.S. economy have been released recently. Investors may believe that the business environment in the U.S. market is difficult to control and withdraw funds from the U.S. stock market. Money continues to flow out of the stock market as investors look to invest in other projects.
They realize demand for gold may increase as investors seek safer havens during times of market turmoil. Traders realize that Australia is rich in gold. As the purchase price of gold is getting higher and higher, the Australian dollar may appreciate. Traders also realize that in order to buy gold, investors will sell their U.S. dollars. As a result, the US dollar may depreciate, with the Australian dollar appreciating accordingly.
Traders can take the opportunity to buy the AUD/USD currency pair.
Under normal market conditions, there is a positive correlation between the Canadian dollar and oil.
The United States is currently the world's largest oil consumer. Canada is currently one of the world's largest oil exporters. Canada's economy is highly dependent on the United States - 75% of Canada's exports and nearly all of its oil production go to the United States.
U.S. oil importers must use Canadian dollars to purchase Canadian oil. If the price of oil rises, more Canadian dollars are needed to purchase oil, and importers must convert more U.S. dollars into Canadian dollars. Now, the demand for Canadian dollars is greater than that of U.S. dollars, so the Canadian dollar appreciates and the U.S. dollar weakens.
There is a lot of opportunity in the Canadian dollar, as there is a belief that the global economic environment will lead to higher oil prices. For example, hurricane weather forced oil production to shut down in parts of the United States. Oil supplies have shrunk sharply due to the shutdown. The demand for oil did not decrease, so oil prices climbed, leading to an increase in demand for the Canadian dollar, as discussed above. Traders can take the opportunity to buy Canadian dollars.
Under normal market conditions, there is a negative correlation between the stock market and the Swiss franc.
The Swiss franc has traditionally been seen as a safe haven, so in the event of economic turmoil, investors have poured money into the Swiss franc market rather than other risky assets, such as the stock market.
So (for example), if there is a negative report related to the US economy, investors will pull money out of the US stock market and put it into a safe haven, such as the Swiss franc.
Investors then buy the Swiss franc, which appreciates as demand increases. Therefore, once traders notice that the U.S. economy is declining, they can look for opportunities to buy Swiss francs instead of other currencies.
You can take a look at this example
The European Central Bank further increased its loose monetary policy on December 3, 2015 (the first vertical line). It stands to reason that the euro should plummet. But no, the market is still rising, which is called a retaliatory rise in news terms.
It was not until June 24, 2016, after the British referendum (the second vertical line) that it started to go down a little, and then went up again.
Basically, this period of time is a period of sideways trading.
Finally, break out of the sideways trend. The entire policy did not begin to reach a new low until November 2016.
This is evident in the slow impact of the policy.
As for the euro, which has risen throughout the year in 2017, it is another story.
A simple analysis is:
In 2017, the euro rose sharply from around 1.05 to above 1.20 against the US dollar. Most of the momentum came from the end of April. The results of the French election in early May showed that "Forward" "Movement candidate Macron received more than 65% of the votes in the second round of the 2017 French presidential election, leading the far-right party "National Front" candidate Marine Le Pen and was elected the fifth president of France and the eighth president of the country. .
In addition, the beautiful euro zone economic data also helped the euro rise. The euro zone manufacturing PMI once rose to a six-year high, and the German IFO business climate index also surged to the best since 2011.
Above. I took a note and found that my thinking became much clearer. Finally:
Crude oil continues to rise.