Fundamental Analysis In The Forex Market Is Far From Dead |
For very many years the foundation of analysis in forex trading was fundamental analysis but in the past few years this has been replaced to a large extent by technical analysis. So, is fundamental analysis for forex trading dead?
Fundamental analysis is based upon a case of examining the economic and political events that may affect currency prices and these events are reflected in things like a country's published economic policy, inflation, growth rates and employment rates. Thus, by looking at the historic effects of economic and political events on a country's currency traders are able to predict the effect that present events will have upon currency prices today.
Just like other markets the forex market is affected by both supply and demand which are themselves influenced by economic conditions. Above all, both supply and demand will be affected by the strength of the economy (reflected in its gross domestic product, foreign investment and balance of trade) and also by interest rates.
For forex traders fundamental analysis means examining current economic conditions which can be seen through the many indicators like producer price indexes, consumer price indexes, durable goods orders and retail sales which governments release periodically.
One key indicator for forex traders are interest rates as movements in interest rates can both weaken and strengthen currencies. For example, while high interest rates may cause stock market investors to sell in the belief that increasing interest rates will lead to higher company borrowing costs hitting their share price, those same high interest rates could also strengthen the local currency making it an attractive currency to trade.
Another key set of indicators for the forex trader are international trade indicators. Whenever a country is showing a deficit on its balance of trade this is generally seen as an bad sign as money leaving the country to pay for imported goods and services may well devalue the currency. For the forex trader however fundamental market analysis might well show that market expectations mean that a trade deficit in certain circumstances is not at all unfavorable. For example, many countries often operate with a trade deficit and so unless there is an exceptional increase in this deficit the currency will already reflect this fact.
There are currently approximately twenty-eight major indicators in the United States that traders rely on to make their trading decisions because all of these indicators have a significant influence on the financial markets. At the same time countries around the world with well traded currencies also publish a similar set of indicators that once again have a significant influence on their own markets. Forex traders must therefore familiarize themselves with these indicators and have at least a rudimentary understanding of exactly how they affect currencies.
Fundamental analysis is far from simple and requires traders to work with huge amounts of data which often require some quite extensive analysis. These days however the arrival of high-powered personal computers and broadband access to the Internet mean that forex traders can now not only easily access the data which they need to carry out fundamental analysis but also have access to a number of very powerful programs which will analyze the data for them at the click of a mouse.
LearningForexTradingOnline.com is the ideal place to learn forex and even includes its own in-house foreign currency conversion calculator
http://learningforextradingonline.com
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