The main points of the fundamental analysis of the currency market
Fundamental analysis on the Forex market means studying and taking into account the factors influencing the rate of one or another currency asset. Since a pair includes two currencies, each of them should be analyzed separately.
The general list of factors influencing exchange rates can be divided into the following groups: economic, political and force majeure.
It is worth mentioning that the broad group of economic news includes not only the publication of reports or indicators but also news about the future monetary policy of central banks, speeches of representatives of monetary authorities, ratings and forecasts of economic development.
Economic news is prioritised according to the importance of its impact on asset performance. Major news items include:
- Central Bank interest rate decisions; - GDP trends; - labour market reports - inflation data; - business activity indices.
Political events of fundamental analysis include change of government (government or head of state) by democratic means or military coup, military conflicts, terrorist acts.
Force majeure or circumstances that cannot be predicted in advance. These are natural and manmade disasters that will require a major financial injection to overcome.
Fundamental analysis is not as simple as it may seem, as an ordinary trader is unable to fully evaluate the full range of information affecting forex pairs trading. In addition, the release of two or more equivalent events, conflicting with each other, creates some difficulties. You should also take into account that not always the news, even a very important one, can break or influence the prevailing trend movement.
Traders should realize that they should use both fundamental and technical analysis to minimize mistakes and the effectiveness of their trading strategy. For example, it is better to enter the market after news releases relying on readings of Forex technical analysis indicators. At the same time, the position, opened by technical signals, during a fundamental news release is required to protect the stop-loss.
Fundamental analysis of the Forex market not only helps traders, but also broadens their outlook and gives them understanding of the vast mechanism of the world economy, so it is unwise to rely only on technical analysis or candlestick analysis in trading. But it is unlikely that good knowledge of fundamental factors without the ability to assess the charts of currency pairs movement from the technical side will help traders to gain profit.
Forex trading is a strict algorithm of rules developed by the trader and transformed into a system of actions or a trading system.