What is fundamental analysis for forex trading?

Usually traders use two types of analysis in Forex – technical and fundamental. The first one involves chart analysis with application of mathematical methods and principles. Fundamental Analysis in Forex implies monitoring of political and economic indicators as well as monetary policy of countries. The main difference between the methods is the approach to the creation of price on the chart. Traders who prefer technical analysis think that it is enough to analyse the actual prices, because this data already includes all indications and reasons of change. However, followers of fundamental approach state that prices depend on fundamental factors and mark relationship between demand and supply. Thus, using technical approach traders analyse prices and relying on fundamental approach they deal with analysis of the trading instrument.

 

Fundamental analysis in Forex examines political, economic, macro- and micro indicators not only for individual countries, but for global environment also. Those factors affect the currency market and cause currency rates to change. Usually fundamental forex analysis is used to forecast movements of currency pairs in the long term and technical analysis has to do with shorter time-frames. However there is a type of trading called "trading the news". It is based on the difference between indicators that economists predicted and the actual market situation. If the difference is significant, the market can move wildly up or down. Such changes can be rather short-term and last for just few minutes.

The main disadvantage of this type of analysis is its complexity. Traders should discover factors that influence on a certain trading instrument and moreover they should see a possible scenario to define Forex trends.  Besides, under different conditions, the same macroeconomic and political factors can affect the market in different ways. For instance factors that worked the last year can have no effect on demand and supply this year. All this requires both the attention and the Forex experience from a trader. So the best way to start is to study forecasts of experienced analysts. Explore forex fundamental analysis forecasts on our website!

There is a wide range of dedicated agencies, web-sites and information resources, that provide an access to economic indicators. Originally this data are collected by a bureau of statistics, for example the US Bureau of Economic analysis of the Department of Commerce or the Federal State Statistics Service of Russia. Usually traders does not have a direct access to original sources, so Forex brokers provide this data by putting an economic calendar on their websites. It includes the most important forex fundamental analysis indicators like global events, indices and past, expected and actual statistics. Since most of operations on the Forex market are related to US dollar, economic data of this country has the greatest impact on prices. Main fundamental factors are gross national product, the employment levels and manufacturing indexes and capacity utilization as well as public speeches of the chief of FRS, the head of Open Market Committee, heads of Central Banks of different countries etc.

 

Learn also:

• Our daily fundamental analysis forecast 
• Our fundamental analysis tutorial  
• News on our economic calendar
• How does GDP influence on an exchange rate?
• What should you know about consumer price index?
• What should you know about retail sales? 
• How does unemployment rate affect an exchange rate? 
• The realtionship between the Stock Market and the Forex market