Fundamental analysis plays a key role in the Forex market, allowing traders to understand the impact of economic factors on currency rates. In this article, we will look at the basic principles of fundamental analysis and the impact of important economic events on the Forex market.
Basic Principles of Fundamental Analysis
1. Economic Indicators: Fundamental analysis involves analysing a wide range of economic indicators such as GDP, inflation, unemployment, retail sales, etc. These indicators help traders to assess the state of a country’s economy and predict changes in exchange rates.
2. Geopolitical Events: Political and geopolitical events also have a significant impact on the Forex market. For example, elections, conflicts, terrorist attacks and other international crises can cause sharp fluctuations in currency rates.
3. Monetary policy of central banks: Decisions of central banks to change interest rates and other monetary instruments have a significant impact on exchange rates. Traders closely follow the statements and comments of central bank leaders to understand their future actions.
The impact of economic events on the Forex market
1. Employment News: Employment reports such as the US Non-Production Jobs (NFP) can cause significant changes in currency exchange rates. An increase in the number of jobs is generally considered a positive signal for the economy and can lead to currency strength.
2- Inflation data: An increase in inflation usually leads to a decrease in the purchasing power of the national currency, which can lead to its devaluation. Traders keep a close eye on consumer price and consumer price index (CPI) reports.
3. Geopolitical conflicts: Tense situations on the world stage, such as armed conflicts or trade wars, can cause currencies associated with regions suffering from the conflict to fall sharply.
Conclusion
Fundamental analysis in the Forex market plays a key role in trading decisions. Traders who have a deep understanding of economic factors and are able to analyse their impact on exchange rates have a better chance of success in trading.
