Fundamental analysis

Fundamental Analysis

Welcome again fellow trader,

We are back on this path to forex success. We had previously looked at technical analysis and why its used by many traders and how it causes the market to manifest to the price action it predicts. If you don’t know what this is and are lost like a fisherman lost in the desert, please refer back to TECHNICAL ANALYSIS. You need to understand that one to know the difference between this one and the other so as to use them all in your future trading success. We now move to….

Fundamental Analysis

This type of analysis refers to looking at various factors of the market such as social, economic and political forces, and how the affect the supply and demand of assets. If you look back or chew on this it will make sense. Like I had talked about economics with the demand and supply curve. If these factors affect the price of an asset by controlling or influencing either demand or supply it makes sense to use this to create trade opportunities.

Using supply and demand to determine where the price is moving is easy. The hard part comes from analyzing all these factors that affect the supply and demand.

You have to look at various economies and how factors such as the unemployment rate or monetary policy will lead to the currency price movement. The main point of these analysis is that if a country’s future and current outlook are good it will cause its currency to strengthen by growth in the economy. This means the people will be more motivated to build their economy which means the currency will strengthen also foreign investors will want to invest in that country due to the positive economic growth.

Lets say the Us dollar is gaining strength due to increased economic growth in the country. This will lead the government to raise interest rates so as to curb inflation. This increases foreign investors need for the US. financial assets due to the higher interest rates i.e. returns/profits on their investments. Which makes the dollar value increase even more due to local and foreign demand for it. Remember the higher the demand the higher the price.

This can also be looked at in reverse when the countries outlook is bad it will lead to negative or stagnant growth leading to less demand for the currency foreign and local. Soon you will know the Fed chairman of the US. Its basically predicting the movement of a country’s currency in relation to the strength of its economic outlook..



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