How Fundamental Analysis Helps In Trading Forex
There are several ways to predict price action in the forex market but these can be generally summarized into two main kinds: fundamental and technical analysis. This article will discuss fundamental analysis and how it is used to predict trading movements. In addition, we will discuss the tools that you will be needing and how this can be used to make profits in trading.
Fundamentals or fundamental analysis is all about looking at factors, whether its economic or political, that could influence the price of a currency. In particular, fundamental analysis experts tend to zoom into the economic factors and data that can show if a country is doing well or not. With that, economic releases tend to have a huge impact on forex price movements since these show if the rate of return on the currency will increase or decrease and if demand will climb or fall.
To be specific, traders usually look at the release of top-tier economic data. These are the GDP (gross domestic product), CPI (consumer price index), and other economic reports that give a bigger-picture view of how the economy is faring. On top of that, forex traders also keep tabs on central bank interest rate decisions because these directly impact the rate of return and demand for a currency. When the central bank plans to hike rates or actually does so, the return and demand for the local currency increase, which leads to a rise in price. On the other hand, when a central bank plans to cut rates or actually does so, this results to a decrease in return and demand for a currency, which then translates to a lower price.
To apply these things in forex trading, you should have a forex calendar ready. This lists down the major and minor economic events that could lead to a strong price reaction or could provide clues for larger events. For instance, the GDP release tends to have a huge impact on price action as it directly shows whether the economy expanded or not. The manufacturing production reports tend to have a subdued effect since these simply hint at whether the GDP will come in strong or weak later on.
When using fundamental analysis, it also helps to look at the longer-term perspective. This puts the reports being released in the proper context and allows the trader to figure out if the reaction will last for days or if it will reverse later on.
Fundamentals or fundamental analysis is all about looking at factors, whether its economic or political, that could influence the price of a currency. In particular, fundamental analysis experts tend to zoom into the economic factors and data that can show if a country is doing well or not. With that, economic releases tend to have a huge impact on forex price movements since these show if the rate of return on the currency will increase or decrease and if demand will climb or fall.
To be specific, traders usually look at the release of top-tier economic data. These are the GDP (gross domestic product), CPI (consumer price index), and other economic reports that give a bigger-picture view of how the economy is faring. On top of that, forex traders also keep tabs on central bank interest rate decisions because these directly impact the rate of return and demand for a currency. When the central bank plans to hike rates or actually does so, the return and demand for the local currency increase, which leads to a rise in price. On the other hand, when a central bank plans to cut rates or actually does so, this results to a decrease in return and demand for a currency, which then translates to a lower price.
To apply these things in forex trading, you should have a forex calendar ready. This lists down the major and minor economic events that could lead to a strong price reaction or could provide clues for larger events. For instance, the GDP release tends to have a huge impact on price action as it directly shows whether the economy expanded or not. The manufacturing production reports tend to have a subdued effect since these simply hint at whether the GDP will come in strong or weak later on.
When using fundamental analysis, it also helps to look at the longer-term perspective. This puts the reports being released in the proper context and allows the trader to figure out if the reaction will last for days or if it will reverse later on.
About the Author:
Want to learn more about forex trading, then visit Steve Hall's site on and learn the fundamentals of forex.
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