What is Fundamental Analysis?

So far you have learnt that technical analysis examines past market data and predicts future price movements. You also know that there is a relevant time period between the past and the future: the present. You want to know what moves the market so your boat won’t rock and turn upside down.

This is where fundamental analysis comes in! It analyses current social, political and economic factors to indicate future price movements.

How it Works

Fundamental analysis works by using economic variables that have the highest predictive value for a particular currency pair. In other words, it sets up a prediction model with focus on factors that had the strongest influence on currency pairs over the years.

These hints are derived from forex reports and real-time forex news such as central bankers’ speeches, macro-economic news, financial, political and economic press releases.

This is all useful because currency movements and interest rate movements go hand in hand. If you trade, you want to trade well. So you’ll be surely following all hints on how interest rates move, in which direction, and how economic data drives currency prices.

Fundamental analysis gives you an overview of the economic conditions that affect the value of a certain currency. Such major indicators are gross domestic product (GDP), retail sales, industrial production, and consumer price index (CPI).