Fundamental Data and Its Many Forms.
Fundamental analysis involves studying data known as economic indicators.
Economic indicators are statistical data points or metrics that provide insights into the overall health and direction of an economy.
The most important economic data to watch for include:
When a piece of economic data is released, fundamental analysis provides insight into how price action “should” or may react to a certain economic event.
Fundamental data takes shape in many forms.
It can appear as a report released by the Fed on U.S. existing home sales. It can also exist in the possibility that the European Central Bank will change its monetary policy.
The release of this data to the public often changes the economic landscape (or better yet, the economic mindset), creating a reaction from investors and speculators.
There are even instances when no specific report has been released, but the anticipation of such a report happening is another example of fundamentals.
Speculations of interest rate hikes can be “priced in” hours or even days before the actual interest rate statement.
In fact, currency pairs have been known to sometimes move 100 pips just moments before major economic news, making for a profitable time to trade for the brave.
That’s why many forex traders are often on their toes prior to certain economic releases and you should be too!
Generally, economic indicators make up a large portion of data used in fundamental analysis.
Like a fire alarm sounding when it detects smoke, economic indicators provide some insight into how well a country’s economy is doing.
While it’s important to know the numerical value of an indicator, equally as important is the market’s expectation of that value.
Understanding the resulting impact of the actual figure in relation to the forecasted figure is the most important part. These factors all need consideration when deciding to trade.
Don’t worry. It’s simpler than it sounds and you won’t need to know rocket science to figure it all out.
I suggest you visit Forex Factory’s (https://www.forexfactory.com/calendar) daily economic roundup every day so that you can stay in the loop with the upcoming economic releases.
Fundamental analysis is a valuable tool in estimating the future conditions of an economy, but not so much for predicting currency price direction.
This type of analysis has a lot of gray areas because fundamental information in the form of reports, economic data releases, or monetary policy change announcements is vaguer than actual technical indicators.
Analysis of economic releases and reports of fundamental data usually goes something like this:
“An interest rate increase of that percentage MAY cause the euro to go up.”
“The U.S. dollar SHOULD go down with an indicator value in that range.”
“Consumer confidence dipped 2% since the last report.”
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