Importance of Fundamental Analysis in Forex Trading

 

Most forex traders plan their trading strategy on the basis of fundamental and technical analysis methods. Generally fundamental and technical analysis are used together in which fundamental analysis method explains the causes of market movements and technical method explain the effects. Fundamental analysis is a method which depends upon economical, political, and other factors to forecast the price of currencies in future. It mainly focuses on political changes, inflation rates, policy of exports and imports, GDP, business related law of the country and many other factors. All these factors may be causes of movements in price of currencies.

Fundamental analyst provides a details overview of changes in price of currencies on the basis of political and economical concepts and issues. Interest rates, supply and demands, foreign investments, trade balance, and political and economical stability etc. are some factors which fundamental analysts take into consideration. This provides a picture of market movements and mainly studies the elements which can affect the economy and on the basis of these it forecast the price trends of currencies pairs. The points on which this analysis is based are following-

Fundamental Economic Analysis– In economic analysis the analyst determine the strength of economy in present and future through Grass Domestic Products(GDP), foreign investments, stock prices etc.

Interest Rate– Interest rates effect the economic growth. If interest rates will raise then the price of currency will move up due to more foreign investments.

Commodity Price Analysis– Price of commodities determines the economic growth of the country. Therefore price of commodities like gold, silver, gas, and oil etc. are important points of consideration here.

Besides these another points which are also considered in fundamental analysis are stock market and currency exchange rates analysis etc. In present financial scenario forex markets are being changes frequently so any forex traders can’t avoid this analysis because it forecast the overall economic condition on which price of currencies depends. Without fundamental analysis, it is very difficult for any forex investor to take a right forex trading judgments.

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