When it comes to predicting price action, traders conduct technical or fundamental analysis. In this article, we will discuss the latter, what it means, what you need to conduct analysis, and how it can be used in forex 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.
In particular, forex traders usually watch out for the release of major economic reports such as the GDP or gross domestic product, CPI or consumer price index, and other figures that give a comprehensive view on the economy. In addition, central bank statements which dictate monetary policy also impact forex movement. When a central bank says that they will hike rates or tighten monetary policy, it usually leads to a higher return for the domestic currency which also means higher demand. On the other hand, when a central bank says that they will cut rates or loosen monetary policy, it usually results to lower return for the domestic currency and hence lower demand.
Using fundamental analysis in forex trading means that you will be needing a forex calendar. This type of tool lists the economic events that are scheduled for release and their possible impact on the currency pair. It also indicates if the release will result to a huge price movement or if will just spark a small reaction. After all, the GDP or gross domestic product tends to elicit a bigger reaction since it is the overall performance report on the economy. On the other hand, a small manufacturing production report might just yield a brief price reaction since it just offers clues on whether overall growth is likely to be strong or not.
At the end of the day, you also have to consider the long-term perspective in using fundamental analysis. This helps you gauge how long the reaction to the report will last and if it supports the general sentiment for the currency you are 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.
In particular, forex traders usually watch out for the release of major economic reports such as the GDP or gross domestic product, CPI or consumer price index, and other figures that give a comprehensive view on the economy. In addition, central bank statements which dictate monetary policy also impact forex movement. When a central bank says that they will hike rates or tighten monetary policy, it usually leads to a higher return for the domestic currency which also means higher demand. On the other hand, when a central bank says that they will cut rates or loosen monetary policy, it usually results to lower return for the domestic currency and hence lower demand.
Using fundamental analysis in forex trading means that you will be needing a forex calendar. This type of tool lists the economic events that are scheduled for release and their possible impact on the currency pair. It also indicates if the release will result to a huge price movement or if will just spark a small reaction. After all, the GDP or gross domestic product tends to elicit a bigger reaction since it is the overall performance report on the economy. On the other hand, a small manufacturing production report might just yield a brief price reaction since it just offers clues on whether overall growth is likely to be strong or not.
At the end of the day, you also have to consider the long-term perspective in using fundamental analysis. This helps you gauge how long the reaction to the report will last and if it supports the general sentiment for the currency you are trading.
About the Author:
Want to learn more about forex trading, then visit Steve Hall's site on and learn the fundamentals of forex.
No comments:
Post a Comment