Forex Fundamental Analysis for Trading Success
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Economic data reports, political / government policies announcements, and other related news headlines are vital resources for forex traders.
Traders will analyze the economies of the countries where the major forex trading pairs are traded. All these factors will impact significantly the changes and sensitivity to the values of currencies.
So, let us take a closer look at what and how daily forex fundamental analysis tells us about the forex market outlook:
The political ecosystem of a country affects the economic outlook of that nation. As such, it directly reflects the perceived value of its currency.
Forex traders are always monitoring political news and events to assess what direction if any, a ruling government may take in the economy.
These can be measures from adding government spending to tightening restrictions on a specific business sector or industry.
Another measure is that a government can step in to revalue (buy in bulk) or devalue (sell in bulk) its currency in the forex market to improve its balance of payment position.
Economic Data Releases
Economic reports are the cornerstone of a forex trader’s treasure trove. Keeping an economic report calendar is important to stay updated in this fast-paced marketplace.
GDP could be the most apparent economic reporting indicator, as it is the baseline of a country’s economic performance and strength.
In general, the better an economy performs, the stronger its currency is and otherwise.
GDP calculates the total output of goods and services produced inside an economy. One key thing to remember, however, is that GDP is a lagging indicator, meaning that it reports on events and trends that have already occurred.
However, real GDP per capita is the best standard indicator of the economy. It correlates well with the standard of living in general terms.
It is the best measure of the wealth or poverty of average people in a country.
Consumer Price Index (CPI)
Another crucial economic indicator for fundamental analysis for forex is the Consumer Price Index or CPI. It calculates the changes in the prices of consumer goods across over 200 different categories.
When we compare the CPI and a nation’s exports, we aim to find out if that country makes a profit or incurs a loss on its products and services.
It is a popular study topic with traders because the prices of exports often change relative to a currency’s strength or weakness.
Central Bank and interest rates
For example, let us say that the U.S. dollar has been increasing strength because the U.S. economy is performing better.
As the economy gets better, raising interest rates may be needed to control growth and inflation.
Higher interest rates make dollar-denominated financial assets, such as government or corporate bonds and other money market instruments more attractive.
In order to acquire these enticing assets, traders and investors have to buy some U.S. dollars first. This increases demand for the currency.
As a result, the value of the U.S. dollar will likely increase against other currencies with lesser demand.
Another key indicator is the balance of trade levels and trends between countries. The trade levels between nations serve as a proxy for the relative demand for goods from a nation.
A nation with goods or services that are in high demand internationally will typically see an appreciation of its currency.
For example, in order to purchase goods from Australia, buyers must convert their currency into Australian dollars (AUD) to make the purchase. The increased demand for the AUD will put upward pressure on its value.
Other trends in macro-fundamentals, such as unemployment rates, inflation rates, retail sales rates are some of the other main factors that can lead to changes in a country’s monetary or fiscal policy.
Many political and economic indicators and even more private reports can be used to evaluate a trader’s forex fundamental analysis strategy.
There are also MT4 and MT5 trading platforms that have expert advisors (EAs) who are literally your advisors when it comes to analyzing the market.
Tradehall is one of the brokers who give access to these trading platforms. Additionally, Tradehall can help you with real-time forex fundamental analysis news (financial news updates.)
This ensures that you do not end up investing at the wrong place and lose money in the next trade.
Interested to find out more about forex fundamental analysis courses? Contact us today at Tradehall.