Any professional, and most importantly – a competent trader, is well aware that for successful trading on a financial exchange it is necessary to be able to use Forex fundamental analysis . After all, it is fundamental analysis that allows a trader to study and predict the price dynamics of currency pairs with maximum accuracy based on macroeconomic indicators and the resulting political and economic news.
That is, using fundamental analysis today, the trader can see on his chart what will happen to the currency tomorrow and become the subject of Forex technical analysis .
In order for a trader to be able to effectively apply fundamental Forex analysis in practice, he needs to systematically monitor economic, international and political events taking place in the world, as well as constantly read the latest news. After all, every official statement or the most important news that comes in a day can greatly affect the price movement of a particular currency on Forex . And the most remarkable thing is that the price movement in the currency and stock markets is due, most often, to a certain understanding of the data traders from the fundamental analysis.
What exactly studies and analyzes the fundamental analysis of Forex?
– Of course, this is the economic situation of the country whose currency the trader uses when trading on Forex. Therefore, any instability, improvement or the slightest deterioration of the economy – can cause a strong price movement of currency. It is news that serves as an excellent push for a trader to open or close a Forex transaction;
– The political life of the state also has a direct impact on the price value of the currency. And not only the weakening or strengthening of the situation in the country can affect the dynamics of the exchange rate, but also other political events (for example, the re-election of the president and so on);
– The financial position of the state, the effectiveness of the work of central banks, the rate of inflation, the rates of NB and much more also have a strong influence on the currency;
– other factors can also affect the price formation of currency at Forex. For example, an earthquake, the re-election of key political figures, loans at the international level, and so on – can greatly affect the currency of a given state.
What methods of fundamental analysis do traders use in their work at Forex?
In order to be able to correctly interpret fundamental indicators, a trader will have to learn how to use methods that allow determining further price fluctuations in currencies.
1. One of the most accessible and simple methods of fundamental analysis of Forex is the comparison method , which consists in the fact that in order to analyze and forecast a trader, it is necessary to learn to compare the most important indicators that can somehow influence the further pricing. These basic indicators are always with confidence can be attributed to GDP and the rate of NB. And only after they are compared, it will be possible to predict with further certainty the subsequent exchange rate.
2. The fundamental method of grouping or generalization, which involves the distribution of currencies into separate sectors for the further miscalculation of the index for each of the currencies, can be equally useful.
3. It is also effective that traders use such a fundamental analysis method as deduction and induction. That is, the method of deduction involves the analysis and prediction of the real situation that may arise in the market by calculating a causal relationship. And the method of induction involves the analysis and collection of all factors and indicators into a single whole with a view to their further generalization.
4. Such a method of fundamental analysis of Forex as a correlation will be no less useful for beginner traders . It involves the identification and comparison of past indicators with subsequent ones. That is, past factors are identified in order to understand what may happen in the future with a currency based on them.
5. And one more reasonably effective method of fundamental analysis is the seasonality method. The most important seasonal trends, which have always influenced and can again have a strong influence on the currency, are identified and assessed. This could include such data as – the cost of food, prices for utilities, the opening of the tourist season and so on.
In general, Forex fundamental analysis methods can help a trader to make the most effective assessment and analysis of past and upcoming trends that constantly occur on Forex. The main thing is to learn how to identify important and paramount news from ordinary rumors and gossip. Since the incorrect interpretation of the received data can lead to incorrect conclusions about the upcoming situation on the currency exchange.