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Fundamental Analysis

The Forex fundamental analysis is one of the two main components of the currency market analysis. Along with the technical analysis, it analyzes the influence on the price of the national currency in terms of macroeconomical and political factors. The main objective of fundamental analysis is to determine what type of currency or other asset to sell (buy) based on the long-term prospects.

The fundamental analysis of the Forex market analyzes the economic and political events in the national and international markets that could lead to a change in exchange rates. This is a quite complex method of analysis, as a variety of factors leads to the different effect on the Forex market. The fundamental analysis has its own unique and distinctive features in the currency market. They add up to the two basic positions:

  • Influence on the rate of the National Banks
  • Analysis of the National economies of countries

The fundamental analysis of the currency market is affected by the condition of the industries’ economy, the country itself, the legislative and tax climate.

In particular, the fundamental analysis of financial market considers the economies of other countries and the effect of factors such as legislation, international trade and investment climate. These factors have some influence on the currency that is the instrument of international trade, and that is reflected in the exchange rate fluctuation.

Here are some factors upon which are built the Forex fundamental analysis can be divided into four groups:

  • Political
  • Economic
  • Psychological expectations and rumors
  • Force majeure events, natural and other disasters

The first two groups are easily defined, but the last two have a high degree of uncertainty, which makes them difficult to analyze.

Using the Forex analysis in these groups is quite interesting but difficult task. Generally, the Forex fundamental analysis analyzes indexes and not absolute values. The index fluctuation is reflected in the percentages. The index change could be significant under the influence of various political, economic and other events, so you need to be aware of the major economic news, which are analyzed by the Forex analysis.

A trader who relies on the Forex fundamental analysis should keep in mind that sometimes this kind of analysis is not enough to see the complete picture in the currency market, therefore there is required the technical analysis. Most traders use both types of analyses in the Forex currency market. The use of these two types leads to the good results. However, for some major and strategic trading points the Forex fundamental analysis is indispensable.

A calendar of economic events is an integral part for any trader in collection and analysis of the information. In this calendar are published the expected major events, such as the rate of the National Banks, inflation, unemployment and employment levels, and the prices for raw material resources. Also, the trader can find in there the information regarding the financial forecast. As a matter of fact, the Forex analysis cannot do without these data.

The fundamental analysis of Forex market is an important component in the planning of currency trading; therefore all traders should pay attention to it.

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