The fundamental analysis can be term as a kind of financial analysis carried out in the context of currency trading, in which the economic situation of countries is studied before making business decisions. Fundamental analysts believe that the strength or weakness of a currency is reflected in the macroeconomic situation. A country with a strong economic perspective (according to economic data) often has a strong currency, while a country with a weak economic perspective often has a weak currency.
By using fundamental analysis to trade Forex, traders often judge how large political and economic announcements have an effect on the value of currencies. Ads that affect a country’s economy, issued by major politicians and economists, are recognized by traders as the cause of the most important movements in the market. Forex traders keep a close eye on the economic news of the major economies, such as the United States and Europe, because their role is significant in the movements of the foreign exchange market.
Fundamental analysts closely monitor supply and demand factors that affect the strength of a country’s currencies and assess whether the currency will rise or fall in the near future. This type of analysis examines the economic, social and political factors to predict price fluctuations and trends in the market. The idea behind this is that a decrease in the supply of a currency would cause it to weaken in value and vice versa.
Some basic forex trading tips include the procedure of predicting a financial instrument’s future price movement (based on environmental, political, economic as well as other related factor) which is known as fundamental analysis. A majority of market players make use of both fundamental analysis as well as technical analysis for determining their trading strategy.
A significant difference between technical analysts and fundamental analysts is that technical analysts can follow several market and market instruments whereas the latter one needs to know a specific market intimately prior to heading towards the other. In other words, fundamental analysis emphasizes on what must take place in a market. For this purpose, it takes into consideration certain factors such as- Supply & demand, Government policy, Weather and Seasonal cycle
A fundamental analyst concentrates on the causes behind the market movements while a technical analyst focuses on the effect of these movements. Fundamental analysis may be referred to as strategic or macro estimation of where a currency needs to be traded. This estimation is chiefly based on the price movement of the currency as well as the economic conditions of that country (whose currency is being traded).
Top economic indicators
The economic indicators that are being used are mentioned below. In addition to an economic indicator’s numeral value, there are other things that need to be considered such as the market’s prediction and anticipation of the forecast, as well as the impact of the relation between anticipated and actual figures on the market.
A majority of traders prefer following these macro indicators. The published data’s quality may vary from time to time. The indicator data’s value is said to be greater in case it puts forward any new information. Over and above, an economic indicator is immensely valuable if one uses it for improving forecast future movements.
Almost all indicators are generally published on definite weekdays, instead of any specific monthly date. Going the below mentioned section, you will find that each economic indicator is marked as Low (L), Medium (M) or High (H), with respect to the rank or importance they hold! Without delaying any further, let us now take a look at these top economic factors.
Consumer Confidence Index – High
The CCI or “consumer confidence index” is referred to as survey that was based on ‘5000 U.S. households sample. It is considered to be a precise “indicators of confidence”. When the economy demands for more jobs, lower rates of interest and increased wages, it in a way enhances our spending power as well as confidence. The respondents are asked to answer some questions regarding their current pay scale as well as the present market condition. They are also asked whether they hope to get a hike (of course a hike in the salary) in the forthcoming years or not. While determining the rates of interest, what the Federal Reserve looks for is CONFIDENCE.
Consumer Price Index – High
The CPI or Consumer Price Index helps to determine the inflation of the price movement. In other words it is considered to be an indicator of the government policy’s effectiveness. Consumer Price Index is defined as a load of consumer goods and service that are trailed every month (not including taxes). It is a crucial economic indicator and a huge market mover. An increase in CPI or consumer price index indicates inflation.