Forex Trading Basic

A Step-by-step Guide to Fundamental Analysis of Currency Market

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Fundamental Analysis of Currency Market : In this article we will try to provide you with a details plan for analyzing the global economic environment and deciding on which currency to buy or sell.

Fundamental Analysis of Currency Market

Fundamental Analysis and Technical Analysis go together in guiding the Forex traders to great opportunities under ever changing market conditions. Both beginners and experienced traders can benefit from the material that follows, but experienced have learned to make one important distinction. They don’t spend ahuge amount of time on the Fundamental Analysis side of the equation, primarily because they don’t have the facilities, access to major information, or the ability to read and assimilate the mountains of data that are made public on daily basis.

Large banks, hedge funds, and large scale investors have those resources, but even they have a tough time arriving at right predictions on how market forces will evolve. The advice is simply to use Fundamental Analysis to determine a general image for market directions, the interplay of key variables, and current monetary policy differences to suggest which currency pairs offer the super opportunities at a point in time. The objective of every trader is to analysis market conditions daily or twice a day and then to modify his strategy according to the outcome. Fundamental Analysis and Technical Analysis are your tools for achieving this goal each and every trading day.

  • Study the macroeconomic arena
  • Decide on the phase of the cycle
  • Examine technological innovations, political environment, emerging market fundamentals
  • Study global monetary environment
  • Study the interest rate policies of major global powers
  • Compare money supply expansion and credit standards with the previous period
  • Examine the interest rate differentials of nations
  • Compare the balance of payments of the currencies

Fundamental Analysis: Market Forces

Every trader should try to get the big picture of Forex, which means not only watch the big trends and reversals taking shape on the bigger time frames, but also being careful of the market forces that shape and expect these trends and reversals.

Below are the best 7 market forces that drive the currency markets:

  1. Interest Rates
  2. Inflation Rates
  3. Trade Balance
  4. Government Debt
  5. Unemployment
  6. GDP
  7. Geopolitical Risks

Given that we are trading currency in pairs that show the relative strength of one currency against other, we must try to compare the market forces beyond each currency within the pair. For example, if we are looking at interest rates, we must look at the difference in interest rates, which is called interest rate differential between the two pairs, not just the interest rate of the one. However, every market force differentiation must look at the present and past situation, and should guess upon the short and long term future prospects. Many of these market forces have their own views, but I will attempt to give a details overview of each, trotting through every kind of comparisons and the questions that arise from each.

Concluding Remarks: Fundamental Analysis of Currency Market

Fundamental Analysis can be very difficult and time killing. It is indeed an academic exercise, but a wide understanding of its principles in a given situation will help you to point where you may have your best potential for gain. 2014 gave us two major examples of how this process can work for your sake. First, the UK economy seemed to recover more quickly than the U.S. at the beginning. The opinion was that austerity measures were doing well, and the consensus was that the U.K would raise interest rates ahead of other nations. As the frontrunner from a Fundamental Analysis view, the Pound soon admired markedly versus its rivals. When the economical data failed to support these expectations, the Pound fell like a rock.

Secondly, the U.S. economy now seemed primary to be the first to raise interest rates. Europe, however, suffered from low growth, low inflation, recessionary tendencies, and a probable quantitative easing necessity. The Euro also fell like a rock. In both cases, a general knowledge of Fundamental Analysis would have discussed with the trader to currency pairs that recommend the highest potential for gain. You have to understand how the market is changing, and which basic information drives those changes. Spend your time carefully in order to reserve as much time as you can for trading.


Please note that: gaining profit from fundamental analysis largely depends on your brokers MT4 platform functions. If your broker is vulnerable to high slippage problem during the time of news release, you are not going to get expected result from trading. So, while Choosing Forex broker, we would like to recommend you to start trading with a broker that has slippage guard. We recommend you to trade with HYCM Broker to get the best possible outcome of forex trading fundamental analysis. Read review of HYCM Broker to learn more on this


Chapter 6

Forex Trading Fundamental Analysis

Lesson 1.Forex Trading Fundamental analysis
Lesson 2Fundamental Analysis of Currency Market
Lesson 3Fundamental Analysis of Interest Rates
Lesson 4Fundamental Analysis of Inflation Rates
Lesson 5Fundamental Analysis on Balance of Trade
Lesson 6Fundamental Analysis on Government Factors
Lesson 7Fundamental Analysis: Employment / Unemployment
Lesson 8Fundamental Analysis on GDP
Lesson 9Fundamental Analysis on Geopolitical Risks

Go back to Main Page: Forex Trading for Beginners

About the author

Md Chhali Uddin

Md Chhali Uddin is a Renowned Financial Analyst. He is also involved with as a writer and financial Analyst. He is a brilliant Financial geek with vast experience in every sector of Currency Trading.

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