Fundamental analysis.

In Forex, there are two options for market analysis - technical and fundamental, and if the first is enlightened by a lot of books and articles, the second is usually covered much worse.

Fundamental analysis – analysis of external factors that may affect the movement of exchange rates. Typically, these are changes in the economy, social and financial system of the country that issued the currency in question, as well as external factors that can cause an increase or decrease in demand for a given monetary unit.

Fundamental analysis, in contrast to technical analysis , seems more understandable for a novice trader, because the area of ​​its research touches on areas that are familiar even to the average person.

For example, everyone understands that a message about a crisis in European countries will cause the Euro to fall. But in practice, everything is much more complicated and not all events can really greatly influence the existing trend, and only a really important message can cause it to reverse. Therefore, if you decide to engage in trading based on fundamental analysis, you must clearly understand what is guaranteed to affect the exchange rate.

Factors of fundamental analysis in Forex.

1. Events in the economy - the court includes reports of improvement in economic indicators such as GDP, trade balance, reports on the general condition of the economic sector.

2. Changes in the social sphere - unemployment or employment levels, inflation, major strikes and mass unrest.

3. Financial – reduction or increase in discount rates of national banks, stability of the banking system, introduction of new regulatory measures, for example, the obligation of exporters to sell all foreign currency proceeds on the interbank market.

Information sources.  

In order to conduct a deep fundamental analysis and make a long-term forecast, messages alone are not enough; it is necessary to analyze the dynamics of changes in certain factors and link them together.

For example, the Bank of Japan discount rate was increased, which led to a short-term strengthening of the Japanese yen, but a significant increase in the price of credit resources after some time slowed down economic growth. Which in turn again caused a downward trend in the Japanese Yen.

It should be noted that such long-term forecasts are practically not used for Forex trading.

Carrying out long-term transactions requires large financial resources and does not always justify the investment. Therefore, in trading it is customary to trade using short-term forecasts, for which the main sources of information are ordinary news. They, in turn, are divided into planned or spontaneous; you can always look at the release schedule of planned events in the economic calendar . As for current news, they can be found on any of the news sites with a financial section or on the sites of most dealing centers.

Trading using Fundamental analysis.

The news trading system is quite simple, although, according to some traders, it is not particularly effective. The thing is that the exchange rate does not always adequately respond to the news and the trader makes unprofitable trades.

But in general, the trading scheme on news looks like this: you monitor the release of news, analyze its impact on a certain currency and determine the place of this currency in the currency pair.
If the news is positive, it will cause an upward trend if this currency acts as a base one, and vice versa, with negative news, the price of such a currency falls.

In the case of quoted currencies, the opposite trend is observed. This strategy is described in detail in the article “ Trading on Forex news ”.

And if you need additional information on this topic, it is located in the section of our website of the same name, “ Fundamental Analysis ”.