Fundamental analysis on the Forex currency market — It is a method of determining the intrinsic value of a currency by analyzing the various economic, social and political factors that may influence its supply and demand. Unlike technical analysis, which focuses on price charts and historical data, fundamental analysis seeks to understand the reasons behind price movements. It is based on the assumption that the exchange rate reflects the economic health of the country. Here are the main economic indicators that traders pay attention to during fundamental analysis:
Gross Domestic Product (GDP)
GDP — it is the total value of all goods and services produced in a country during a given period. GDP growth indicates a strengthening economy, which usually has a positive effect on the national currency.
Inflation rate
Inflation measures the level of price increases in the economy. Central banks closely monitor inflation figures as they influence monetary policy. High inflation can lead to higher interest rates, which in turn increases the demand for the national currency.
Interest rates
Central banks set interest rates, and their changes have a direct impact on the foreign exchange market. Currencies with higher interest rates often attract more investors seeking high yields, which increases the demand and value of the currency.
Balance of payments
The balance of payments includes the trade balance, i.e. the difference between exports and imports, as well as capital flows. A balance of payments surplus indicates an excess of export receipts over import costs, which has a positive effect on the currency.
Employment indicators
Employment data, such as the unemployment rate and changes in the number of jobs, can provide insight into the health of the economy. An improvement in employment indicators usually indicates a strengthening economy and can contribute to a stronger currency.
Political stability and economic productivity
Political instability such as conflicts, elections, and government changes can cause uncertainty in the market and negatively impact the currency. On the other hand, political stability and transparent economic policies can contribute to the influx of foreign investment and the strengthening of the currency.
Forex requires knowledge and skills
Forex — it is a place where currencies are exchanged at prices determined by agreements between traders and buyers of currencies. In addition, trading in shares and raw materials takes place on Forex platforms. Just literally a dozen years ago, only banks, large multinational corporations and organizations authorized by them had access to trading platforms — brokers, and traders are engaged in direct trading.
Nowadays, anyone who has a computer and constant access to the Internet can become a trader. The broker he chooses provides the place and opportunity to monitor the market situation. A trader’s earnings directly depend on fluctuations in exchange rates relative to each other, and in order to understand in which direction the exchange rate will move, you need to be able to analyze the situation on the market, take into account in your work various financial and political news that have a significant impact on the situation market. In order for an ordinary person to work in the market, it is advisable to undergo training, where you can obtain the basic knowledge of stock trading and begin to put it into practice.
To attract a wider range of traders, brokerage firms, in addition to organizing the study of operating principles, provide the opportunity to work on a demo account or on a cent account. Working on such accounts will allow you to gain practical skills, develop your own line of behavior in trading, and assess the degree of influence of world events on market movements.
Economic reports
Regular economic reports, such as manufacturing indexes, retail sales data, and consumer confidence reports, can give traders insight into the current state of the economy and potential changes in the exchange rate.
Fundamental analysis requires a deep understanding of the economy and ability to interpret complex data. Traders using this approach must monitor the news, analyze economic reports, and take into account political events to predict trends in the foreign exchange market and make informed trading decisions.