Fundamental Analysis

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What Is Forex Fundamental Analysis?

Fundamental analysis in Forex involves evaluating the economic, financial, and political factors that influence currency prices. The goal is to determine the intrinsic value of a currency and predict its long-term movement.

Key Factors in Forex Fundamental Analysis

 

FACTOR
IMPACT
Interest Rates
Higher rates attract foreign capital, boosting currency value
Inflation
Moderate inflation supports growth; high inflation weakens a currency
GDP Growth
Strong economic growth = stronger currency
Employment Data
More jobs = healthier economy = stronger currency
Trade Balance
A surplus strengthens the currency; a deficit weakens it
Central Bank Policies
Actions (like rate hikes or QE) can heavily influence currencies
Geopolitical Stability
Political risk or instability usually weakens a currency
Consumer & Business Sentiment
Reflects confidence in the economy’s future

Important Reports to Watch

REPORT
REGION
RELEVANCE
Non-Farm Payrolls (NFP)
USA
Key job creation report
CPI & PPI
Global
Measures inflation
GDP Reports
Global
Measures economic output
Interest Rate Decisions
All
Set by central banks (e.g., Fed, ECB, BoE)
PMI (Purchasing Managers' Index)
Global
Measures business activity

Why Use Fundamental Analysis in Forex?

  • Identifies long-term trends

  • Helps anticipate central bank moves

  • Complements technical analysis

  • Aids in understanding currency strength/weakness drivers

Limitations

  • Doesn’t predict short-term price action well

  • Requires understanding of global macroeconomics

  • Market may not react logically or immediately

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