Fundamental analysis is the study and interpretation of economic data.
The economy of each country is monitored by traders, and as certain information is released it is used to predict changes in the market.
This information is released in the form of news announcements, speeches, and economic numbers during each and every month of the year.
Below there is a handy list of key pieces of information that give important clues about the economy:
Because each of these are indicators of economic health they are watched closely by traders around the world.
Simply put if you can gauge how the trading community is going to react to a certain piece of economic information you can make sure that you are trading in the same way before the orders come flooding in.
The important thing to bear in mind is that information that looks like a weakening economy has a negative impact on the currency of that country whilst information that looks like a strengthening economy has a positive effect.
An example would be a drop in the number of people employed within a certain country, this would show that the economy may be contracting thus frightening any potential investors away, overall this could be considered quite negative for the economy of that country and so the value of their currency my fall especially in comparison to another currency whose country is seeing an increase in the number of employed people.
And remember all currencies are traded in pairs so it’s important that you have an understanding of how the two economies match up in relation to each other in terms of economic strength and weakness.
For example, the most commonly traded pair is the EUR/USD, so the fate of that pair depends heavily on the situation in the European and US economies. So if one is stronger than the other we may see a shift in the direction of that pair overall, in favour of the strongest economy.
The same is true of every other pair in the Forex market.
There are many fundamental factors that traders use to formulate their opinions and plan their trades around so it’s important not to get wrapped up into one single event or announcement but rather try and absorb as many of these fundamental aspects as you can to get a feel for how well an economy is faring overall, in comparison to another economy.
A great calendar to use in order to keep track of all these announcements can be found on Forex Factory.
Video – How to Interpret the news calender
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