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Australian Financial Services (AFS) Licence 246566

Fundamental Forex Analysis

Fundamental analysis is a method of forecasting future price movements of a financial instrument based on economic, political, environmental and other relevant factors, as well as data that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately. Fundamental analysis focuses on what ought to happen in a market. Among the factors considered are: supply and demand; seasonal cycles; weather; government policy.

The fundamental analyst studies the causes of market movements, while the technical analyst studies the effect. Fundamental analysis is a macro, or strategic, assessment of where a currency should be traded, based on any criteria but the movement of the currency’s price itself. These criteria often include the economic conditions of the country that the currency represents, monetary policy, and other fundamental elements.

Many profitable trades are made moments prior to, or shortly after, major economic announcements.

Leading economic indicators

The following is a list of economic indicators used in the USA.

  • Non Farm Payroll
  • FOMC Meeting
  • GDP – Gross Domestic Product
  • CPI – Consumer Price Index
  • CCI – Consumer Confidence Index
  • ISM (Institute for Supply Management) Manufacturing Index

Obviously, there are many more, as well as those of other leading economies (such as Germany, the UK, Japan, etc.). In general, it is not only the numerical value of an indicator that is important, but also the markets anticipation and prediction of the forecast, and the impact of the relation between anticipated and actual figures on the market.

Such macro indicators are followed by the vast majority of traders worldwide. The quality of the published data can differ over time. The value of the indicator data is considered greater if it presents new information, or is instrumental to drawing conclusions which could not be drawn under other reports or data. Furthermore, an indicator is highly valuable if one may use it to better forecast future trends.

Note that in the USA most indicators are published on certain weekdays, rather than on a particular monthly date (e.g. the second Wednesday in each month, as opposed to the 14th of each month, etc.).

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