Analysis of the Forex market
Forex Analysis Basis – the Fundamental Analysis
If somebody would like to become the forex trader there are lots of factors that need to be monitored. Economic, geopolitical and social factors have a significant impact on currency exchange rates. It happens because each of such factors has an impact on supply and demand which determine the currency exchange rates. This kind of detailed analysis is called Fundamental Analysis.
What does it mean in practice?
It is not an easy task, but well-performed Fundamental Analysis will give you an information whose economic condition is strong and whose is not. It is necessary to observe and understand reasons why some internal events in countries, like unemployment rate, inflation or government debit, affect country’s economy. As it was mentioned before, remember that economy conditions have a strongest impact on monetary policy and currency exchange rates.
Why the Fundamental Analysis is worthy to be used?
It is easy to understand. Such analysis lets to predict in more or less the future situation of a country. When their plans for future are bright and the government decisions are smart (yeah… for sure) there is bigger chance to attract a foreign investors. In result, country’s economy is getting better and the currency exchange rates increase.
Maybe some example?
Let’s take the United States of America as an example. The US government had taken few smart decisions which resulted in economy improvement. This improvement affects interest rates which increase in order to control the inflation and growth. In this way, financial assets are becoming more attractive for potential investors but they must buy some dollars first. In the result, US currency value will rise.
The Fundamental Analysis is a basic tool for predicting the currency moves. It should be one of the first steps in the Forex World for each beginner of currency trading. More detailed economic data and definitions should be learned in the further steps, but as the basis of first forex analysis the Fundamental Analysis seems to be the correct tool.