Role of Fundamental Analysis in Forex Trade
Posted on 06. Jul, 2009 by admin in Currency
The two common types of analysis used in forex trading are fundamental and technical analysis. Fundamental analysis, a stentorian forex strategy uses economic and political indicators like unemployment forecasts, inflation rates, growth rates and political or economic policies to predict currency prices.
The indictor information can be obtained from forex brokers and online. The fundamental analysis results are affirmed through technical analysis and the two are coalesced to find egress and entry points in currency trading.
The important economic factors uses in fundamental analysis for forex reviews include supply, demand, interest rates, economic growth, GDP, trade balances and foreign investment, PMI, PPI and CPI.
Interest rate fluctuations can make a currency strong or weak. When the interest rates mount, stockholders sell shares thinking that high
borrowing costs will impinge on companies negatively, causing the market to slump. However it may affect the economy positively if it attracts foreign investment.
If imports exceed exports the consequence will be trade deficit which is a downbeat signal in fundamental analysis because it brings down the currency value. However this impact will become evident only if the trade deficit surpasses market expectations.
GDP or summation of worth of goods a country creates and M2 which is the total currency supply of a country are other important indicators.
