Forex Fundamentals Analysis

Tuesday, February 25th 2020.


And being a volatile, you will need to be able to tolerate a certain level of risk. First, make sure you have one of the top brokers for forex trading, which will automatically set you up with many of the tools you need. In particular, the following advice can get you started on tracking economic indicators and making better-informed trading decisions. Fundamental analysis helps you understand the building blocks of a currency and help you anticipate where it will go next. However, many traders use the forex markets more for short-term price fluctuations.


Learn about how the likes of the Federal Reserve, European Central Bank, and the Bank of England impact currency prices and trading decisions. Reading Forex’s fundamental analysis, it would be wise to learn its methodology. Fundamental analysis in forex does not compare the current data of a single economic indicator like CPI to its previous data.

Moreover, indicators are not only measured against each other through time, but some of them also correlate cross-discipline and cross-borders. This also nicely demonstrates the key difference between fundamental and technical analysis. While forex technical analysis barely pays attention to anything but the current price, fundamental analysis researches everything but the current price.

Their value will depend on the strategy the trader is trying to follow and its risk management rules. Inflation occurs when the purchasing power of a given currency decreases, and central banks usually have the job of keeping it in check . You’ll often hear fundamental analysis mentioned as a method of finding stocks to buy. But in truth, it is used by traders in multiple different asset classes. One of the simplest ways to start following the fundamentals is by using economic calendars.

These events can change the balance between two currencies so aggressively that it is worth keeping an eye on what their impact might be. The recent referendum in the United Kingdom offers us the perfect example of a political event that changes the way currencies are valued. The Brexit vote for the United Kingdom to leave the European Union had a tremendous impact on the British Pound, such that it lost in value virtually overnight. It is not only the GBP currency pairs that moved, though, as correlations influenced trading as well. As mentioned in another article here on our Forex Trading Academy, correlations are very important, as some markets will move based solely on them. It doesn’t really matter if the news item refers to these currency pairs or not.

How to Perform Fundamental Analysis in Forex?

Europe, however, suffered from low growth, low inflation, recessionary tendencies, and a potential quantitative easing necessity. In both cases, a general knowledge of forex Fundamental Analysis would have guided the trader to currency pairs that offered the highest potential for gain. Your goal is to understand how the market is changing, and fundamental information drives those changes. Spend your time wisely, however, in order to reserve as much time as you can for trading. Forex analysis helps a trader to analyse the market conditions before making a decision on whether to buy, sell or hold a position in a currency pair. But there is a catch – forex trading is always done in currency pairs, so a trader needs to analyse not just one currency’s exchange rates, but both.

  • As a rule, trade imbalance plays a key role while performing fundamental analysis of any market.
  • Fundamental and technical analysis involve very different strategies and approaches to trading; offering unique value and insights to support trading decisions, and when to enter or exit a trade.
  • Keeping an economic calendar handy on your desktop can help keep you informed of upcoming reports and indicators.
  • The retail sales report can be compared to the sales activity of a publicly-traded company.
  • The value of a currency is based on various factors, the major one being its economic condition.
  • WallStreetZen does not bear any responsibility for any losses or damage that may occur as a result of reliance on this data.

Sometimes your technical analysis may just show the best point of entry for a trade. After you enter the trade based on this information, some additional important economic news might be released. This data is usually used to determine a stock value so that one can determine if it is overvalued. Analysts that look at these factors often publish this data for their followers as this gives one an idea of whether the stock has a higher chance of rising in value or falling in price.

Last 14 Days Daily High/Low Indicator

The most important value here is marked under ‘Impact’, as it determines the possible strength of a currency price shift. A green impact would indicate a weak shift, a yellow impact would stand for moderate, while a red impact indicates that the news is crucial. No matter what type of analysis you employ, it is vital to understand every type of analysis.


Start by selecting your local time zone in the drop down menu. Once you have selected your local time zone, it is now necessary to select a certain time span over which you are planning to perform your fundamental analysis. This time span depends on the type of a trader you are, yet it is highly recommended to look at least one week ahead. Let’s start by examining the GDP figures as an indicator of economic growth. It has clearly been on an upwards trajectory over the past 6 months.

cycle analysis

The amount of the key interest rate is set by the central bank about ten times a year. Whether the key interest rate is high or low depends on the economic development of the country. Central banks are primarily responsible for the monetary policy of the respective country or currency area.

Tracking a nation’s industrial production can indicate how strong its economy is. The industrial production report specifically shares changes in production of factories, utilities, and mines. You can also track “capacity utilization,” which shows how close to capacity their resources are.


Most of them happen over the weekend, and over the weekend you will never know how the market will open on Monday. Over a long period, as the economy grows, the amount of money in circulation should also grow. Inflation levels are a measure of the fluctuations in the cost of goods over a period. The value of the pound will likely increase against other countries with less demand. We provide access to trading FX, Futures, Metals, CFD’s and Commodities on MT4 and word-class customer service. Analysis can seem like an ambiguous concept to a new forex trader.

The retail sales report, as the name suggests, measures total sales from all retail stores in the country. This is an excellent way to track consumer spending, and reports adjust for impacts of the seasons. Retail sales reports are often more readily available with more recent data, so they are useful between releases of the GDP and other lagging indicators. This guide will help you understand what fundamental analysis is, what factors you need to understand, the limitations of fundamental analysis, and how to get started.

Zen Score is designed to make it easy to quickly understand a stock’s fundamental strengths and weaknesses. Of course, if you dig deeper you would understand that AMZN’s Return on Equity looks weaker than it really is, because they’re constantly reinvesting into long-term revenue growth. However, the way most stock tracking apps show the current ratio isn’t intuitive, especially to less experienced investors. The current ratio is an important liquidity ratio that evaluates a company’s ability to pay its short-term debts i.e. debts that are due within the next year.

Retail Sales

In the markets, fundamentals analysis looks at the effect of the economic indicators which can eventually determine the exchange rate. The technical analysis comes in the form of both manual and automated systems. A manual system typically means a trader is analyzing technical indicators and interpreting that data into a buy or sell decision. An automated trading analysis means that the trader is “teaching” the software to look for certain signals and interpret them into executing buy or sell decisions. Where automated analysis could have an advantage over its manual counterpart is that it is intended to take the behavioral economics out of trading decisions. Forex systems use past price movements to determine where a given currency may be headed.

Technical Analysis vs Fundamental Analysis – Which is Better –

Technical Analysis vs Fundamental Analysis – Which is Better.

Posted: Thu, 31 Mar 2022 07:00:00 GMT [source]

Ideally, you want to get an instant update once the news has been published. This is why you should test every option to find the one that reacts the quickest. This is not really software used for the analysis of fundamental events, yet it is very useful for fundamental traders. Usually, it comes as an additional plugin with MetaTrader 4 , but with Admirals you can access OCA orders by applying the MT4 Supreme Edition update.

  • One of the useful courses in the FX Academy–Forex Fundamental Analysis- teaches traders how to use fundamental analysis of currencies to achieve more profitable Forex trading.
  • We will cover more on this in chapter 14 when we learn about economic calendars.
  • Trade thousands of markets including Luft, EUR/USD, Germany 40, and gold.
  • You’ve been reading everything you can get your hands on about forex trading.
  • You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.

Some are released weekly, most are released monthly and a few quarterly. The best way to keep track of such news events is with a Forex calendar, an essential tool for fundamental analysis, which provides a daily schedule of planned economic announcements. You may have noticed that, from the very practical standpoint of an average Forex trader, it is news reports that produce movements on the markets. There are several economic indicators that financial experts observe because they can provide guidance on the overall health of an economy.

As in any other professional career, learning before practicing is the key to success. Recognizing strengths and weaknesses is also a critical part of this process. The best strategy for one person could be the worst one for others.

There is a lot of economic data released that has a significant impact on the Forex market. If you think about it, every piece of news has some impact on the financial implications for a country. So, it makes sense for a Forex trader to utilise this form of analysis. Understanding the potential behind the news announcements may give you a useful edge.

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