Fundamental Analysis Forex

Fundamental analysis
is one of
several analysis methods (alongside technical and sentiment analysis) used to evaluate currencies in the Forex market. It’s the study of the real causes of market movements, and examines the economic, social and political factors that affect supply and demand, which is one of the main causes of price movement. But fundamental analysis in currencies differs from the one used in stock trading which most people are familiar with.

Stock fundamental analysis is concerned with studying the financial statements and profit rates of companies to assess the strength of the company and the value of its shares. Currency fundamental analysis, on the other hand, is concerned with studying the macroeconomic factors that directly affect the performance of the currency, and the study of some economic, political and social factors that affect the economy and thus affect the movement of the currency
exchange
rate.

Some of the most important factors and economic indicators that impact currency prices are:

  • Interest Rate
  • Inflation
  • Gross Domestic Product
  • Consumer Expenditure Indicators
  • Investment Indicators
  • Labo
    u
    r
     Market Indicators

Before you begin
preparing
 a fundamental analysis report, you must have a source from which to extract the
 necessary
 economic data
 and news.

To assist you in this, w
e offer you a free
economic calendar
 and
newsroom
 on the Equiti website.

In order
to
 identify the strength

and weakness of
a
 currency
, i
t is necessary to study a range of economic factors
such as
the e
conomic indicators
 mentioned above, statements and spee
ches from c
entral ban
ks
 and economists, and
 any
 u
nexpected breaking news
.

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How
to Prepare a Fundamental Analysis Report

1. The first step to preparing a fundamental analysis report is to study
 the results of the general economic performance over three months. This is done by knowing the result of the following data:

  • GDP results (
    QoQ
    )
  • Consumer spending results
  • Housing sector results
  • Industrial production results
  • Dura
    b
    le goods report
  • Trade balance and

    current
     account results
  • New jobs
    , unemployment rates and working hours
  • Economist statements

All this
 data should be studied and compared with
its
 counterparts for previous periods
 to form an overall picture of
the performance of the economy
 and its improvement or decline. This will allow you to understand whether
 the economic situation is positive and is developing and supporting the cur
rency’s strength or the economy is negative and is
 deteriorating and supporting the currency’s weakness.

2. The second step is to d
etermine the expected direction of interest rates
.

You can predict
 the interest rate through the res
ults of the first step analysis, the study of
 inflation indicators
, and s
tudying the statements
and hints of officials about
 future monetary policy
.

Based on the first and second step in the analysis you can expect the
 future direction of the currency. However, t
here is a lot of risk for investors who make their buying or selling decisions immediately after the release of
economic
indicators
d
ue to high volatility when data
is
released
.
Therefore
,
 fundamental analysis sho
uld be based on
a
n
 holistic view.

Fundamental
 analysis is for the medium and long term in
vestor, and
gives only expectations of the trends but doesn’t provide entry levels, target setting or stop loss
 points
. Therefore, technical analysis should be used along with fundamental analysis.


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Margined Forex and CFD trading are leveraged products and can result in losses that exceed deposits. The value of your contract can fall as well as rise, which could result in receiving back less than you originally deposited. Please ensure you understand the risks and be sure to manage your risk exposure effectively.