Forex Fundamental Analysis
Forex fundamental analysis is a way of predicting movement of a currency’s value. This type of analysis takes into account many different social, economic and political factors in order to make a correct prediction. You are analyzing the current situation in a country, so that you can figure out what to expect in the future. Forget about past numbers and trends that happened once upon a time. In this type of analysis you want information NOW. You can see why this can sometimes be a bit difficult, but it essentially boils down to one simple thing. Stay with us and you will find out all about it!
Forex fundamental analysis | It’s all about the economy
The gist of forex fundamental analysis is this – if a country’s economy is doing well, the currency of that country will gain value. If the economy is bad, the currency will drop. Charts and Forex Technical Analysis can help you with this, too. This is because, depending on how well an economy is doing, it becomes more attractive for foreign investors who are then forced to buy that country’s currency if they want to do business (and they do). On the other hand, nobody wants to invest in a bad economy, meaning that nobody wants the country’s currency, either. As a consequence, the currency’s value drops. But how can we predict this? On what do we base our forex fundamental analysis? Well, the name is a hint, but we will talk about that in the next paragraph, so keep reading!
Forex fundamental analysis | Multiple factors
Like we said, three main types of factors are at play here: social, economic and political. Therefore, whenever there is a scheduled market event from any of those spheres, you can expect change. Because of that, you have to plan ahead. Let’s say that you know that the US government will make a major decision concerning the US dollar in two weeks. That means that you know that the economy will receive a jolt from the political sphere, so you can expect a change. Next, you have to see how the market is likely to react. This is where Forex Sentiment Analysis can help. It’s very difficult to be 100% sure, but you can get a general idea how things will develop. For example, a correct forex fundamental analysis of the Brexit would be that the GBP would drop because of the referendum (which can be considered as both a social and political factor). Based on reactions prior to the referendum, you could have easily guessed that the pound will plummet if the UK leaves the EU, which it did. Essentially, you are looking for fundamental reasons for change.
Forex fundamental analysis | Conclusion
Forex fundamental analysis requires a great deal of information. However, thanks to the internet and modern day media, this information can easily be acquired. Plan ahead and try to take into consideration all factors from the three main spheres. See which sphere has the most influence at a given moment and try to feel the pulse of the market through various predictions. It sounds complicated, but it really isn’t, and you’ll get the hang of it quickly. Good luck!