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.
Fundamental analysis refers to the study of various factors, such as economic, political, and even natural phenomena, that can affect price action. Most fundamental analysts focus on the economy and the different reports that can indicate whether the country is performing well or not. This is why economic data plays a key role in forex price action, as it determines whether the return on the currency will increase or not and if demand will rise 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.
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.
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.
Fundamental analysis refers to the study of various factors, such as economic, political, and even natural phenomena, that can affect price action. Most fundamental analysts focus on the economy and the different reports that can indicate whether the country is performing well or not. This is why economic data plays a key role in forex price action, as it determines whether the return on the currency will increase or not and if demand will rise 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.
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.
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.
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Want to learn more about forex trading, then visit Steve Hall's site on and learn the fundamentals of forex.
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