Fundamental Analysis
Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all the factors that affect supply and demand.
In other words, you have to look at different factors to determine whose economy is rockin' like a Taylor Swift song, and whose economy sucks. You have to understand the reasons of why and how certain events like an increase in unemployment affect a country's economy, and ultimately, the level of demand for its currency.
The idea behind this type of analysis is that if a country's current or future economic outlook is good, their currency should strengthen. The better shape a country's economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country's currency to obtain those assets.
For example, let's say that the U.S. dollar has been gaining strength because the U.S. economy is improving. As the economy gets better, raising interest rates may be needed to control growth and inflation.
Higher interest rates make dollar-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first. As a result, the value of the dollar will increase.
Later on in the course, you will learn which economic data drives currency prices, and why they do so. You will know who the Fed Chairman is and how retail sales data reflects the economy. You'll be spitting out interest rates like baseball statistics.
But that's for another lesson for another time. For now, just know that the fundamental analysis is a way of analyzing a currency through the strength or weakness of that country's economy. It's going to be awesome.
Lessons in Fundamental Analysis
1. What is Fundamental Analysis? If you like analyzing social, economic, and political factors tha
affect supply and demand, fundamental analysis is for you!
2. Interest Rates 101 Interest rates changes are one of the biggest fundamental catalyts out there Heck,you could even say that they make the forex world go 'round!
3. 411 on Monetary Policy Your mama may have brought you up to believe that honesty is the best policy, but in forex trading, monetary policy rules!
4. The Who's Who of the Central Bank Central banks are like puppeteers. They have full control over monetary policies and their words can move markets in an instant.
5. Long-term Market Movers As with personal relationships, it's important to consider long-term factors in trading. They may hold the key to your happiness!
6. News and Market Data In forex trading, you've got to keep up to date with the latest news and market data to stay alive. Be in the know by checking out these market info tools!
7. Market Reaction A super duper important report just came out... Now what?!
Along your travels, you've undoubtedly come across Gulliver, Frodo, and the topic of fundamental analysis.
Wait a minute...
We've already given you a teaser about fundamental analysis during Kindergarten! Now let's get to the nitty-gritty!
What is it exactly and will I need to use it? Well, fundamental analysis is the study of fundamentals! That was easy, wasn't it? Ha! Gotcha!
There's really more to it than that. Soooo much more.
Whenever you hear people mention fundamentals, they're really talking about the economic fundamentals of a currency's host country or economy.
Economic fundamentals cover a vast collection of information - whether in the form of economic, political or environmental reports, data, announcements or events.
Even a credit rating downgrade qualifies as fundamental data and you should see how Pipcrawler this news into a winning short EUR/USD trade.
Fundamental analysis is the use and study of these factors to forecast future price movements of currencies.
It is the study of what's going on in the world and around us, economically and financially speaking, and it tends to focus on how macroeconomic elements (such as the growth of the economy, inflation, unemployment) affect whatever we're trading.
In particular, fundamental analysis provides insight into how price action "should" or may react to a certain economic event.
Fundamental data takes shape in many different forms.
It can appear as a report released by the Fed on U.S. existing home sales. It can also exist in the possibility that the European Central Bank will change its monetary policy.
The release of this data to the public often changes the economic landscape (or better yet, the economic mindset), creating a reaction from investors and speculators.
There are even instances when no specific report has been released, but the anticipation of such a report happening is another example of fundamentals.
Speculations of interest rate hikes can be "priced in" hours or even days before the actual interest rate statement.
In fact, currency pairs have been known to sometimes move 100 pips just moments before major economic news, making for a profitable time to trade for the brave.
That's why many traders are often on their toes prior to certain economic releases and you should be too!
Generally, economic indicators make up a large portion of data used in fundamental analysis. Like a fire alarm sounding when it detects smoke or feels heat, economic indicators provide some insight into how well a country's economy is doing.
While it's important to know the numerical value of an indicator, equally as important is the market's anticipation and prediction of that value.
Understanding the resulting impact of the actual figure in relation to the forecasted figure is the most important part. These factors all need consideration when deciding to trade.
Phew!
Don't worry. It's simpler than it sounds and you won't need to know rocket science to figure it all out. Fundamental analysis is a valuable tool in estimating the future conditions of an economy, but not so much for predicting currency price direction.
This type of analysis has a lot of gray areas because fundamental information in the form of reports releases or monetary policy change announcements is vaguer than actual technical indicators.
Analysis of economic releases and reports of fundamental data usually go something like this:
"An interest rate increase of that percentage MAY cause the euro to go up."
"The U.S. dollar SHOULD go down with an indicator value in that range."
"Consumer confidence dipped 2% since the last report."
Here's an Economic Report, Now What?
The market has a tendency to react based on how people feel. These feelings can be based on their reaction to economic reports, based on their assessment of current market conditions.
And you guessed it - there are tons of people, all with different feelings and ideas.
You're probably thinking "Geez, there's a lot of uncertainty in fundamental analysis!"
You're actually very right.
There's no way of knowing 100% where a currency pair will go because of some new
fundamental data.
That's not saying that fundamental analysis should be dismissed.
Not at all.
Because of the sheer volume of fundamental data available, most people simply have a hard time
putting it all together.
They understand a specific report, but can't factor it into the broader economic picture. This simply takes time and a deeper understanding of the data.
For example, let's say that the U.S. dollar has been gaining strength because the U.S. economy is improving. As the economy gets better, raising interest rates may be needed to control growth and inflation.
Higher interest rates make dollar-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first. As a result, the value of the dollar will increase.
Later on in the course, you will learn which economic data drives currency prices, and why they do so. You will know who the Fed Chairman is and how retail sales data reflects the economy. You'll be spitting out interest rates like baseball statistics.
But that's for another lesson for another time. For now, just know that the fundamental analysis is a way of analyzing a currency through the strength or weakness of that country's economy. It's going to be awesome.
Lessons in Fundamental Analysis
1. What is Fundamental Analysis? If you like analyzing social, economic, and political factors tha
affect supply and demand, fundamental analysis is for you!
2. Interest Rates 101 Interest rates changes are one of the biggest fundamental catalyts out there Heck,you could even say that they make the forex world go 'round!
3. 411 on Monetary Policy Your mama may have brought you up to believe that honesty is the best policy, but in forex trading, monetary policy rules!
4. The Who's Who of the Central Bank Central banks are like puppeteers. They have full control over monetary policies and their words can move markets in an instant.
5. Long-term Market Movers As with personal relationships, it's important to consider long-term factors in trading. They may hold the key to your happiness!
6. News and Market Data In forex trading, you've got to keep up to date with the latest news and market data to stay alive. Be in the know by checking out these market info tools!
7. Market Reaction A super duper important report just came out... Now what?!
What is Fundamental Analysis?
Along your travels, you've undoubtedly come across Gulliver, Frodo, and the topic of fundamental analysis.
Wait a minute...
We've already given you a teaser about fundamental analysis during Kindergarten! Now let's get to the nitty-gritty!
What is it exactly and will I need to use it? Well, fundamental analysis is the study of fundamentals! That was easy, wasn't it? Ha! Gotcha!
There's really more to it than that. Soooo much more.
Whenever you hear people mention fundamentals, they're really talking about the economic fundamentals of a currency's host country or economy.
Economic fundamentals cover a vast collection of information - whether in the form of economic, political or environmental reports, data, announcements or events.
Even a credit rating downgrade qualifies as fundamental data and you should see how Pipcrawler this news into a winning short EUR/USD trade.
Fundamental analysis is the use and study of these factors to forecast future price movements of currencies.
It is the study of what's going on in the world and around us, economically and financially speaking, and it tends to focus on how macroeconomic elements (such as the growth of the economy, inflation, unemployment) affect whatever we're trading.
Fundamental Data and Its Many Forms
In particular, fundamental analysis provides insight into how price action "should" or may react to a certain economic event.
Fundamental data takes shape in many different forms.
It can appear as a report released by the Fed on U.S. existing home sales. It can also exist in the possibility that the European Central Bank will change its monetary policy.
The release of this data to the public often changes the economic landscape (or better yet, the economic mindset), creating a reaction from investors and speculators.
There are even instances when no specific report has been released, but the anticipation of such a report happening is another example of fundamentals.
Speculations of interest rate hikes can be "priced in" hours or even days before the actual interest rate statement.
In fact, currency pairs have been known to sometimes move 100 pips just moments before major economic news, making for a profitable time to trade for the brave.
That's why many traders are often on their toes prior to certain economic releases and you should be too!
Generally, economic indicators make up a large portion of data used in fundamental analysis. Like a fire alarm sounding when it detects smoke or feels heat, economic indicators provide some insight into how well a country's economy is doing.
While it's important to know the numerical value of an indicator, equally as important is the market's anticipation and prediction of that value.
Understanding the resulting impact of the actual figure in relation to the forecasted figure is the most important part. These factors all need consideration when deciding to trade.
Phew!
Don't worry. It's simpler than it sounds and you won't need to know rocket science to figure it all out. Fundamental analysis is a valuable tool in estimating the future conditions of an economy, but not so much for predicting currency price direction.
This type of analysis has a lot of gray areas because fundamental information in the form of reports releases or monetary policy change announcements is vaguer than actual technical indicators.
Analysis of economic releases and reports of fundamental data usually go something like this:
"An interest rate increase of that percentage MAY cause the euro to go up."
"The U.S. dollar SHOULD go down with an indicator value in that range."
"Consumer confidence dipped 2% since the last report."
Here's an Economic Report, Now What?
The market has a tendency to react based on how people feel. These feelings can be based on their reaction to economic reports, based on their assessment of current market conditions.
And you guessed it - there are tons of people, all with different feelings and ideas.
You're probably thinking "Geez, there's a lot of uncertainty in fundamental analysis!"
You're actually very right.
There's no way of knowing 100% where a currency pair will go because of some new
fundamental data.
That's not saying that fundamental analysis should be dismissed.
Not at all.
Because of the sheer volume of fundamental data available, most people simply have a hard time
putting it all together.
They understand a specific report, but can't factor it into the broader economic picture. This simply takes time and a deeper understanding of the data.
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