Basics of Fundamental Analysis in Forex Trading


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FUNDAMENTAL ANALYSIS

Equities or commodities are valued by their intrinsic strength on an absolute basis, while foreign exchange is valued by the relative strength of one currency with respect to another. Some of the economic indicators that fall into the realm of fundamental analysis are interest rates, employment reports, and inflation reports, among others.

WHAT IS FUNDAMENTAL ANALYSIS?

Trading on the fundamentals – also referred to as trading the news – is the study of news events and economic statistics to determine trading opportunities. Referred to as fundamentalists, these traders pay close attention to changes in economic indicators such as interest rates, employment rates, and inflation.

Fundamentals analysis is the study if news events

APPROACHES TO FUNDAMENTAL ANALYSIS

Forex and CFD prices are impacted by macro and micro-economic data, geo-political events and their linkages. These factors may include for example, GDP growth rates, potentially disruptive geopolitical events, employment statistics, interest rates, and balance of trade reports among others.

TOP DOWN ANALYSIS

Begins by analyzing broad brush macroeconomic factors and aggregates of data working downwards narrowing and refining the search to include only those currency pairs that present a profit potential.

BOTTOM-UP ANALYSIS

Conversely, this type of analysis starts with analyzing the currency pair working upwards to aggregate macroeconomic information.

THE FORCES DRIVING DEMAND AND SUPPLY

These have a significant impact on the valuation of commodities. For example, a growth of international conflict may result in increased demand for nickel, which is used in armaments and ammunition manufacturing driving up prices.

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TRADING ON FUNDAMENTALS

Fundamental analysis examines key drivers such as macro and micro economic data, and geopolitical events.

TECHNICAL ANALYSIS

Fundamental analysis tells you what to trade, and technical analysis tell you when to trade it and complements fundamental analysis.

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TRADING NEWS AND ANALYSIS

Fundamental analysis can be fairly time consuming, and to this end, OANDA provides several high quality resources, including: blogs, analysis, news and market commentary.

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Common Economic Indicators

Traders pay close attention to economic indicators which can have a direct, and somewhat predictable, effect on the value of a nation’s currency in the forex market.

GROSS DOMESTIC PRODUCT (GDP)

One of the most influential of the economic indicators, GDP measures the total value of all goods and services produced by a country during the reporting period. An increase in GDP indicates a growing economy, and for this reason, GDP is used to measure the level of inflation within the economy. View current stats

CONSUMER PRICE INDEX (CPI)

Measures the cost to buy a defined basket of goods and services. It is expressed as an index based on a starting value of 100. A CPI of 112 means that it now costs 12% more to buy the same basket of goods and services today than it did when the starting index value was first determined. By comparing results from one period to the next, it is possible to measure changes in consumer buying power and the effects of inflation. Inflation is a concern to currency traders as it affects the price of everything bought and sold within an economy, and this has a direct impact on the supply and demand for a country’s currency. Inflation is an increase in the price of goods and services. While inflation by its very definition suggests economic growth, inflation that occurs too rapidly actually weakens consumer buying power as prices increase at a faster rate than salaries. View current stats

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PRODUCER PRICE INDEX (PPI)

Also an inflation indicator, the PPI tracks the changes in prices that producers receive for their products. Expressed as an index relative to 100. Excludes volatile items such as energy and food to avoid distorting the index. By measuring the prices received by domestic producers, it is possible to project how the consumer-level prices could be affected. View current stats

Employment reports have an immediate impact on currencies because employment levels directly affect current and future spending habits. An increase in unemployment is a negative indicator as it implies that more people are not receiving a regular salary. This is a sure signal that consumer spending will decline. View current stats

More Indicators

† Disclaimer:

This page is for general information purposes only: examples are not investment advice or an inducement to trade. Past history is not an indication of future performance.

Execution speed and numbers are based on the median round trip latency from receipt to response for all Market Order and Trade Close requests executed between January 1st and May 1st 2019 on the OANDA execution platform.

Contracts for Difference (CFDs) or Precious Metals are NOT available to residents of the United States.

MT4 hedging capabilities are NOT available to residents of the United States.

The Commodity Futures Trading Commission (CFTC) limits leverage available to retail forex traders in the United States to 50:1 on major currency pairs and 20:1 for all others. OANDA Asia Pacific offers maximum leverage of 50:1 on FX products and limits to leverage offered on CFDs apply. Maximum leverage for OANDA Canada clients is determined by IIROC and is subject to change. For more information refer to our regulatory and financial compliance section.

This is for general information purposes only – Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.

Trading FX and/or CFDs on margin is high risk and not suitable for everyone. Losses can exceed investment. Contracts for Difference (CFDs) and hedging capabilities are NOT available to residents of the United States

Basics of Fundamental Analysis in Forex Trading

Source: https://www1.oanda.com/forex-trading/learn/trading-tools-strategies/fundamental-analysis

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