Forex Trading Fundamental Analysis

Fundamental analysis is also one of the main methods of market analysis. It achieves the purpose of studying and judging market conditions through the analysis of economic, social, political and other factors that may affect the supply and demand of assets. If you pay attention to fundamental analysis, it will be of great significance in guiding your trading. The reason is simple, prices are determined by supply and demand.

It is very simple to use supply and demand as an indicator to judge price trends, but the difficulty lies in the analysis of all factors affecting supply and demand.

In other words, you have to determine which economy has strong fundamentals and which economy has terrible fundamentals. You need to understand why and how an increase in data such as unemployment affects a country's economy, and ultimately the market demand for that country's currency.

The idea behind fundamental analysis is that if a country's current or future economic prospects are good, that country's currency should remain strong. The better the economic fundamentals of a country, the more overseas companies and investors invest in the country, and the greater the demand for using the country's currency to acquire the country's assets.

The figure below tells us what fundamental analysis is in the simplest way:

For example, because the U.S. economy is improving, the dollar is continuing to strengthen. As the U.S. economy improves, the Federal Reserve may need to raise interest rates to control excessive economic growth and inflation.

Rising interest rates will make dollar-denominated assets more attractive. In order to obtain U.S. dollar-denominated assets, investors first need to purchase U.S. dollars. The result is a strengthening of the value of the U.S. dollar.

In the following lessons, you will learn which economic indicators affect currency prices and why they affect currency prices. We'll also demystify the Federal Reserve and show you how retail sales data reflects the state of the economy.

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