Fundamental analysis in Forex Trading

What’s Fundamental Analysis in Forex market
Fundamental Analysis refers to the study of the core underlying elements that influence the movement of currencies. As in Forex trading, government policies, economic announcements, bank policies, natural disasters, and speculators mood are some of the fundamentals considered to predict the currency market trends.

Just like fundamental analysis in stock market, investors measure a company's true value and base investments upon this type of calculation. Fundamental FOREX traders will evaluate a country's currency base on these fundamental elements and respond accordingly.

Economy Indicators
To gain max, fundamentalists often apply precise method to convert study's results into accurate entry/exit price indicator. Fundamental analysis involve a lot of analysis on the macroeconomic situation.

Thus, economy indicators of the country such as GDP growth rates, unemployment rates, retail sales, and interest rate are used heavily in when valuating a country's currency. Some of the frequent used economy indicators in Forex trading are as below (Click in each for detail explanations):

· The Gross Domestic Product (GDP)
· Retail Sales
· Interest Rates
· Unemployment Rate

Besides those listed above, other fundamental factors used to analysis the currency strength include Industrial Production Reports, Consumer Price Index (CPI), Manufacturing PMI-ISM, and Manufacturing Production. We will cover each of these indicators from time to time.

How are indicators used in Forex fundamentals trading?
A country's economic situation refelects directly onto the currecny trading world. Hence, it is important for a Forex traders to keep an close eye on the financial clalender release by it country itself or private sectors. It is important to keep in mind, however, that the indicators discussed above are not the only things that affect a currency's price. There are third-party reports, technical factors, and many other things that also can drastically affect a currency's valuation.

Also, it is recommended to study the fundamental aspects of several country whenever trading in the forex market. For those countries that have strong political/economical connection, currencies value flux hand-in-hand. Thus researching a few countru in a trade is necessary.

Some useful tips when implementing fundamentals analysis in Forex trading are:*
· Economic calendar: When and where. Currency values response sharply to certain release of economy indicators. Keep a close eyes on the currency price trend whenver there is a release on related economy indicators.
· Be informed about the economic indicators that are capturing most of the market's attention at any given time. Such indicators are catalysts for the largest price and volume movements. For example, when the U.S. dollar is weak, inflation is often one of the most watched indicators.
· Know the market expectations for the data, and then pay attention to whether or not the expectations are met. That is far more important than the data itself. Occasionally, there is a drastic difference between the expectations and actual results and, if there is, be aware of the possible justifications for this difference.

1 comment:

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