Introduction to Fundamental Analysis of Forex

by Serene Education Education

Forex traders always rely on analysis to make their Forex Trading Strategies. There are two basic types of Forex Analysis- Technical and Fundamental. This article will look at fundamental analysis and how it used in Forex trading.

What is Fundamental Analysis? It refers to political and economic conditions that may affect currency prices. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic rates, economic policies and inflation.

Fundamental analysis is often used to get an overview of currency movement and to provide broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their finding with fundamental analysis in their Forex Trading Strategies.

Indicators- Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly. Two of the most important indicators are interest rates and international trade.

Interest Rates- It can have either strengthening or weakening effect on a particular currency. On the one hand, high interest rates affect foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

International Trade- Trade balance which shows a deficit is usually an unfavorable indicator. If country habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

There are 28 major indicators used in US. Traders use these indicators as their Forex Trading Strategies in UK also. Indicators have strong effects on financial markets so Forex traders should be aware of them when preparing strategies. Up- to- date information is available on so many online websites, Forex Trading Training Academy in UK and many Forex brokers also give this information as a part of their trading service.