Getting To Know Forex Fundamental Analysis

If you are a forex investor and you hate charts (you practically duck when you see them), you can try to do a fundamental analysis when doing a forex trade.

Unlike in technical analysis, you don't have squint at charts and plot out "buy" and "sell" points. Fundamental analysis in forex, however, requires you to know intimately the countries that are issuing the currency pair. This is because fundamental analysis relies on analyzing how political events and economic conditions affect the strength or the weakness of a particular currency.

As with technical analysis, the key to fundamental analysis is being up to date on information. Among the information that is relevant are inflation rates, growth rates, economic policies and political events.

In actual forex trading, tradres use technical analysis to plot their "buy" and "sell" points and support their decisions with fundamental analysis.

Forex currency prices are always at the mercy of forces that affect supply and demand. These forces, in turn, are affected by conditions in a nation's economy.

A forex trader relying heavily on fundamental analysis should track a nation's volume of foreign investment, its Gross Domestic Product (GDP), and TRADE BALANCE.

If a country's trade balance indicates a deficit, i.e., there are more imports coming in than exports going out, it indicates an unhealthy economy. A deficit only means that a country is spending more to buying foreign goods. This may devalue a country's currency in the forex market, although this is not always the case. If a country has historically operated with a trade deficit, the forex market will actually factor the deficit into the price of a currency.

A forex trader can also utilize other economic indicators that are released by official sources like the government and the academe, like the Consumer Price Index (CPI) and the Producer Price Index (PPI).

The CPI actually measures a country's cost of living while the PPI measures how much it costs to produce goods. The GDP, meanwhile, measure the value of a country's goods and services.

If you plan on trading in trading U.S. dollars, it would be wise to be familiar with the 28 economic indicators that are periodically published in the United States. These indicators have had strong effects in the U.S. financial markets. Forex traders should always take them into consideration when drawing up a trading strategy. Updated figures on these indicators are available on many websites, including those of forex brokers' as part of their service.