Forex trading is all about two main aspects when it comes to analysis, fundamental analysis and technical analysis. Both levels of analysis are indispensable, with fundamental analysis including the following factors.
Economic situation; political factors; military developments; government and central bank policies; market psychology; speculative trading; and unforeseen events.
The economic situation is the most important of all the factors influencing foreign exchange trading: it consists mainly of the analysis of the economic situation and the analysis of economic indicators.
The economic situation: the economic situation reflects the economic situation of a country, a country's economic situation also reflects the heat of investment, thus showing the market value of its currency, the flow of international funds. The economic form is a direct reflection of the country's economic indicators. The exchange rate of the market follows the economic situation of the country. This is followed by the situation of the world economy, such as oil prices, stock markets, bonds, gold, commodity markets, real estate, etc.
Economic indicators: Economic indicators are the results of a survey of a country's economic development, different economic indicators have different levels of influence, the greater the reflection of the economic situation is the more valuable economic indicators, the greater the degree of influence.
In the process of forex trading, the analysis of fundamentals mainly revolves around these factors, but not entirely based on these to draw the final investment conclusions, but also need to integrate technical analysis to determine.
The Complete Fundamental Analysis
Fundamental analysis refers to the study of the fundamental aspects that affect the value of a currency to predict market movements. The release of major economic data often brings about volatility in the forex market. For novice forex investors, we advise you to be very careful in data markets.
Market expectations often have a greater impact on prices than actual data. Therefore, investors need to pay close attention to the expected values and be alert to any inconsistencies that may cause market volatility.
Corrections are usually made after the data is released. Pay attention to how it compares and contrasts with the previous period as it will help you to accurately analyses future data.
Understand the value of fundamental data. It can often be used to identify buy and sell signals. We classify important economic data into three categories, depending on the degree of influence on the exchange rate.
The most important data are.
1. Non-farm payrolls data and unemployment rate.
The information for the previous month is released on the Friday of the first week of each month. It is a barometer reflecting the macroeconomic development of a country. A lower unemployment rate or an increase in non-agricultural employment indicates an improvement in the economy and a possible increase in interest rates, which is favorable to the dollar; conversely, it is unfavorable to the dollar.
2. Trade Balance.
Information from two months ago is published on the second Thursday of each month. It reflects the country's total foreign trade income and expenditure in a period of time, trade currency inflows minus outflows are a positive trade surplus, a negative is a trade deficit. If the trade deficit widens, reflecting an expansion in the number of imports over exports, indicating that US goods are less attractive than foreign goods, US policymakers will likely act to devalue the dollar to improve the trade deficit, which is bad for the dollar. Conversely, a falling trade deficit benefits the dollar. In some countries, if the trade balance is in surplus, then an increase in the surplus is beneficial to the country's currency strength.
3. Gross Domestic Product
GDP is the total economic activity within a country, regardless of who owns the productive assets, and is published at the end of January, April, July and October each year. For example, if a foreign company establishes a subsidiary in the US, its earnings are still part of the US GDP even if they are repatriated to its parent company in another country.
