Fundamental Analysis: Complete Guide to Professional Forex Analysis

Fundamental analysis is the process of analyzing the fundamental factors affecting financial markets in order to predict the future price. Forex fundamental analysis tackles the overall state of the economy and examines various fundamental factors including interest rates, employment rate, GDP, international trade, and manufacturing, to evaluate their relative impact on the value of the national currency.

What is Fundamental analysis？

Fundamental analysis is evaluating the price of a currency and the factors that could influence its value in the future, including external influences, as well as financial statements and economic trends.

What are major Economic Indicators used in Fundamental Analysis？

Interest rates, inflation, and GDP are the three main economic indicators used in Forex fundamental analysis. Of course, there are various other indicators to consider including trade balance, retail sales, and employment data. Not to mention monetary decisions, fiscal policy changes, and political stability. It‘s important for you to take time to look at the numbers and understand what they mean and how they can influence a nation’s economy.

Interest Rates

Interest rates are essential when it comes to fundamental Forex analysis. Manipulating interest rates, as a part of the national monetary or fiscal policy, is one of the primary functions of central banks. This is because interest rates are a great factor of the economy, and stronger than any other factor in influencing currency value as well as inflation, investments, trade activity, production rate, and unemployment.

Inflation Data

Inflation report reflects the fluctuations in the cost of goods over a period of time. Note that every economy has a level of what it considers as healthy inflation, usually around 2% in many countries. As the economy grows, the amount of money in circulation grows which is the definition of inflation. Here the governments and central banks interfere to balance inflation around the target level. High inflation affects the balance of supply and demand in favor of supply, so the currency depreciates as the supply surpasses demand. There is an opposite term for inflation which is deflation. During deflation, the value of money increases, so goods and services become cheaper.

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