When it comes to the Forex Market, it is essential to understand that there are two types of methods for analyzing the Forex Market – technical and fundamental. Technical analysis involves the consideration of different charts, reports and news pieces for analyzing the market. Fundamental analysis refers to the consideration of all the economic, social and political forces going on in all the related countries and how those changes can affect the rates of the currency.
This article aims to cover all the All That You Need To Know About Forex Fundamental Analysis. Keep reading to understand it better.
About Fundamental Analysis
The basic idea behind doing a fundamental analysis of the Forex Market is to check the country’s current and future economic status. If the economic profile of the country looks good, then there is a high chance that it’s currency would grow stronger. When a country’s economy is more promising and is in good shape, then more foreign businesses and investors are attracted to invest in that economy. For doing so, trading of the country’s currency will take place.
The sources which are taken care of while doing a Fundamental Analysis are:
Central banks are one of the main actors in the financial market. Their actions make a lot of difference in how the market functions. They control the market by raising the interest rates or lowering them, and by using other measures, as required. Their insights on the possible changes in the Forex Market are mostly precise and so are very important. They can understand the situation of the Forex Market better than any other body. So, it gets very essential to consider all the speeches and statements given by the higher authorities of the Central Bank.
Sometimes certain countries are not on very good terms with each other. Due to this, conflicts, cold war, and wars follow. This political tension between countries intensely affects and impacts the trade of goods and services, because the supply would also change. For example, if China is the only country which produces cheap steel and it comes into conflict with other countries, then the supply of steel in those countries would reduce notably and prices would rise. It will affect the entire Global Market as well as the Forex Market. It is important to accurately predict what such geopolitical events would result in. That is the way you can go ahead and make better decisions in the Forex Market, using this fundamental analysis.
Weather plays a crucial role in trading of goods and services. There may be difficulties created due to heavy snow storms, floods, droughts, hurricanes, tornadoes, tsunamis etc. The trade and supply of goods and services may be delayed because of this, thus affecting the forex market too. We often feel that these events are very unpredictable and so we do not do anything about it. However, if you keep checking the weather reports and weather Channels, you will be able to understand if there is any pattern in the weather change and such calamities. You can also look at videos of farmers or traders of that region on the internet. You can bring this to your benefit and using this is your fundamental analysis, you can make good decisions in the Forex Market.
Seasonal factors may be related to the weather or else they may be related to some other factors. Usually, at the end of an accounting year, investors prefer to sell those equities which have kept declining throughout the years. They do so to claim capital losses on their taxes. So usually, many investors prefer selling out their equities at the end of the year and buy them at the beginning of the new accounting year. Consider all those aspects and make a wise decision to be benefited in the Forex Market.
With all these factors, you can make your own fundamental analysis. There are many more sources which can help you out. But as you keep learning and getting an expertise in the field, you will discover those factors by yourself too. Start with basic factors and then keep encouraging yourself to explore more and invest in a smarter way!