Forex Trading: Fundamental Analysis

Fundamental analysis is widely used in Forex and it is an analysis method that involves the study of economic matters of countries to determine the effect that is will cause to the value of the currency.

If you can grasp the relationship between the economy and currency, a will be able to predict or determine the more likely direction of the currency that you are trading.

This is often an advantage as the trader will then be able to take a trade according to the direction that the currency is heading.

If you are curious, these economic news are released by government or independent bodies that gathers the economic data.

There are some economic indicators that can be used to observe the movement of these data and these data can be analyzed before it is published.

These reports are released on different timings like weekly, monthly, quarterly or annually.

For forex traders, they will look at the most recent result of the report in order to determine their trading activities.

If the economy report is positive or strong, it will affect the value of the currency and vice versa.

Therefore, forex traders can based on the reports to look for trading entries.

So what does a strong economy report stands for?

A strong report will indicate that the returns on real estate or the stock market and other business ventures will be more likely.

This is due to the attraction of oversea investors who would seek to jump into the countries economy so that they can capitalize on the opportunity to make more money.

This will eventually create an effect on the countries currency.

Another area that might have an effect on the currency value is the exportation of goods and services.

A strong economy will be based on exports and manufacturing as well as financial services.

Due to more parties who are willing to secure these services, they will have to convert their currency to the local currency of the business provider.

Hence, the more demand there is for these businesses, the better the currency value.

So how is the fundamental analysis got to do with these things?

It is because of the economic reports.

When these reports are released, there will be a certain amount of speculation.

Forex traders will then anticipate or predict whether the result will be positive of negative.

If the anticipation is negative, forex traders will sell the currency.

However, the currency does not always drop immediately.

When this phenomenon occurs, the market will be referred as ‘priced in’.

This means that when the actual event is taking place, the price of the currency hs already experience the change.

Therefore, forex traders using the fundamental analysis are extremely sensitive to news releases.

During these times, the market could be extremely volatile.

In this kind of situation, the currency will tend to chop up and down dramatically.

Most traders will stay away from the forex market in these situations.

They will re enter the market to look for trading opportunities once the market has settled down.

All and all, fundamental analysis is a method where forex traders will study the news happening around the currency pair that they are trading and make judgement on whether the price would increase of go lower.

Happy trading,

Yours sincerely,




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