Fundamental analysis is the study of the real world influences on the valuation of a currency. Economic announcements such as interest rate changes, official GDP announcements, inflation figures, national political elections and mass unrest or times of crisis are some of the major examples of real world influences on currency valuations.
Fundamental Analysis in a Nutshell
Fundamental analysis rests on the belief that the market can be known through the timely comprehension of news events and their correct interpretation. The announcement of large rise or fall in a country’s GDP, for example, can mean its currency will rise or fall accordingly. The fact that this does not always happen means that analysis and insight into the likely effect of news on the market can be valued as much as the news itself.
Technical Analysis
Fundamental analysis is often contrasted to technical analysis. The latter rests on the belief that prices can be known through the analysis of historical price data. Technical analysts use charts and raw data to attempt to anticipate the future direction of the market. They do not believe that market fundamentals have the same potency in determining the future market as history does.
Using a strategy
Forex traders can combine aspects from both fundamental and technical analysis. The end result is ultimately what counts. If a profit can be made from using a mixture of strategies, then this can be counted as a successful trading method.
Sarah writes about forex basics to help anyone starting out in currency trading.