Price movement on Forex, as well as on stock and other markets, directly depends on fundamental factors: macroeconomic indicators of economic development, the level of exchange rates. Fundamental analysis of Forex, in fact, is engaged in studying and analysing the current situation, based on the credit and economic, political and economic component of the development of countries that affect the participants of the currency market.
Fundamentals of fundamental market analysis
The basis of a good fundamental analysis of the market is the assessment of factors and moments affecting currency rates:
- indicators of economic growth (GDP, freight traffic volumes, production volumes of industrial goods, etc.);
- the level of the NB interest rate;
- the degree of commodity dependence, the state of the trade balance;
- growth of money supply in the domestic market of the country;
- confidence in the national currency on the international market, solvency of the country as a whole;
- inflation rate;
- the degree of development of other areas of the global financial market;
- policy of the country as a whole, in relation to neighbouring countries.
Fundamental analysis of the market is not an easy task, it requires relevant knowledge in the field of economics and finance. Sometimes the same factors, under different conditions, have a completely different impact on the market. Under the right conditions, seemingly minor factors can become major and decisive in a particular market situation.
Analysing financial markets
How successful the fundamental analysis of financial markets will depend on how much the trader understands the laws of financial markets, how much he is able to compare seemingly unrelated events and make appropriate conclusions. If the fundamental analysis was carried out competently and correctly, it predetermines the trader’s understanding of the general picture of the financial market in the long term, which can be significantly affected by some important news, rumours or force-majeure events.
Significance of news
When analysing the currency market, it is worth paying special attention to the news release, which is convenient to track with the help of the economic calendar, knowing in advance the time and date of the news publication. It is necessary to take into account how the market will react to the news and react accordingly.
If the news is in line with the forecasts, there should usually be no special surges of volatility in the market. If the expectation was underestimated, the current trend of price movement may strengthen, for example, in an uptrend, a strong upward impulse will be formed after the news. If the expected news is overestimated, the opposite effect may occur, the current trend may be reversed.