Management for Trade and Investment
Key exchange rates are always interesting for traders and investors because they give an opportunity to simulate a possible future situation on financial market and to use this prognosis for money making. To analyse the situation on this market, financial analysts and traders usually use two main principles – technical and/or fundamental analysis. Technical analysis is based on graph forms analyzing and studies different figures and their definitions declaring that history is always repeating.
“A technical analyst will study the price and volume movements and from that data create charts (derived from the actions of the market players) to use as his primary tool. The technical analyst is not much concerned with any of the “bigger picture” factors affecting the market, as is the fundamental analyst, but concentrates on the activity of that instrument’s market” (www. ac-markets. com 2008). There are three key principles of technical analysis: • Market action discounts everything;
• Prices move in trends; • History repeats itself. Thus, technical analysis studies past experience to use it in future. Basing on this, there were created a lot of indicators what help to predict the direction or changing of currency trend. What about fundamental analysis, it is based on the
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Fundamental analytics use this data to value the economic rate in the country and to simulate the movement of its currency. “… fundamental analyst identifies and measures factors that determine the intrinsic value of a financial instrument, such as the general economic and political environment, and including any that affect supply and demand for the underlying product or service. If there is a decrease in supply but the level of demand remains the same, then there will be an increase in market prices” (www.
ac-markets. com 2008). A lot of traders and analytics try to use both types of analysis – technical and fundamental. From the other side, it is not obligatory, because there are a lot of fundamental or technical analysts who successfully use one analytical method only as financial market surely reacts on fundamental news but, also, it already has the influence of these news in graph forms so it is possible to be just technical or fundamental analyst and to successfully predict the movement of currencies.
As for the current research, it will have the analysis of key exchange rate trends of the four currencies (US dollar, Euro, Japanese yen and Great Britain Pound) for the last year. 2008 was a difficult year for US and worldwide economics and there were a lot of factors what changed trends of currencies in financial market. This research will have an attempt to make both technical and fundamental analysis for currencies trends in 2008. Starting current fundamental research from the European currency (Euro), it is possible to say about really high volatility of this currency during this year.
Looking at the Picture 1, it seems that Euro has fallen vice versa US Dollar but after analyzing graphs with Euro vice versa Great Britain Pound (Picture 2) and GBP vice versa USD (Picture 3) it is clear that Euro hasn’t lost its positions, the reasons of those movements was US dollar, which has risen vice versa both EUR and GBP till the end of November 2008. What about Euro, it has been rising relatively Great Britain Pound during all 2008 year.