Fundamental analysis on Forex: what is it and how to use it?

Fundamental analysis (FA) is a method of predicting future prices by analyzing economic, political and other factors affecting the supply and demand of currencies. Along with technical analysis, fundamental analysis is one of the two most important approaches to currency trading.

Fundamental analysis is based on the principle that exchange rates reflect the main factors that influence the economy and politics of a country. Using fundamental analysis tools and techniques, traders can identify factors that may cause price movements and use this information to make trading decisions.

Fundamental analysis tools

There are many fundamental analysis tools that traders can use to analyze the foreign exchange market. Some of the most popular tools include:

• Economic Data: Economic data such as gross domestic product, unemployment rate and inflation can have a significant impact on exchange rates. A trader can use economic data to predict future rates and make trading decisions.
• Political Events: Political events such as elections, legislative changes and military actions can also affect exchange rates. An investor can use political events to predict future rates and make trading decisions.
• News: News such as corporate earnings reports, natural disasters and accidents can also affect exchange rates. A trader can use news to predict future rates and make trading decisions.

Fundamental analysis methods

There are many fundamental analysis techniques that traders can use to analyze the Forex market. Here are some of the most popular methods:

• Balance of Payments Analysis: Balance of Payments Analysis: The balance of payments is a measure of how much a country imports and exports of goods and services. A positive balance of payments means that a country exports more goods and services than it imports. A negative balance of payments means that a country imports more goods and services than it exports.
• Interest Rate Analysis: Interest rates are the rates that central banks charge banks when they lend them money. Changes in interest rates can lead to changes in borrowing costs and, consequently, currency prices.
• Inflation analysis: Inflation is an increase in prices for goods and services. Inflation can reduce the purchasing power of a currency and thus reduce its value.

Application of fundamental analysis in the foreign exchange market

Fundamental analysis can be used by traders to analyze various markets, including the foreign exchange market. FA can be used to predict future prices and determine the best entry and exit points for trading.

It is important to note, however, that fundamental analysis is not an exact science. It cannot guarantee traders profits. FA is just a tool that can help investors make more informed decisions.

Tips for using fundamental analysis in the Forex market

Below are some tips for using fundamental analysis in the Forex market:

• Get familiar with the basics of fundamental analysis. There are many sources that can help you learn PA, including books, websites, and videos.
• Do not use only one fundamental analysis tool or method. Use multiple tools and methods to get the most accurate forecasts.
• Test your strategies on a demo account before using them on a real account. This will help you understand how your strategies work in the real world.
• Be patient and disciplined. Fundamental analysis requires time and effort to achieve success. Don't expect instant profits.

Comparison of fundamental and technical analysis

Technical and fundamental analysis are the two main approaches to Forex trading. They have different strengths and weaknesses.

Technical analysis

Advantages:

• Fast and simple.
• It can be used to forecast short- and medium-term trends.

Disadvantages:

• May be inaccurate.
• May lead to false signals.

Fundamental analysis

Advantages:

• Greater accuracy.
• Can be used to predict long-term trends.

Disadvantages:

• Requires more time and effort.
• May be more difficult to use.