Fundamental Analysis

Forex traders almost always rely on fundamental analysis to map out their currency trading strategies at the beginning of each year. Fundamental analysis involves heavy examination of the value of a nation’s currency based on macroeconomic indicators, asset markets, and political affairs. Getting acquainted with fundamental analysis and predicting market changes require gaining an understanding of the factors that most easily influence changes in the currency market. It is important for Forex traders to stay informed of developing circumstances that may affect the value of currencies.
The purpose of fundamental analysis is to measure the intrinsic value of a particular currency based on major news announcements such as economic indicators, changes in government policies, and catastrophic events. These news announcements, due to their effects on the economy, influence the value of a particular currency or group of currencies. The ability to identify such effects on a currency can make the difference between earning and losing money while trading currencies. Examples of economic indicators include statistical reports on employment, retail sales, gross domestic product (GDP), gross national product (GNP), and interest rates. The stability, growth, or decline in any of these sectors may have an effect – direct or indirect – on the value of a particular currency in a country or countries utilizing that currency.
Changes in political policies may include increasing or decreasing the money supply or changing interest rates. These moves might be made to curb inflation, maintain economic stability and encourage economic growth. Another example is charging tariffs, which might encourage domestic manufacturing, thus bringing more money into the economy.
Catastrophic events, such as a natural disaster or a terrorist attack, can have a very significant impact on a country’s economy. Besides the unfortunate devastation of human lives in these instances, they would curtail government spending, hurt consumer confidence, and cause instability.
Forex provides extensive Reuters News™ and expert commentaries to traders for the purpose of fundamental analysis. Some traders base their decisions solely on fundamental analysis, while others focus on technical analysis. With CMS Forex, traders have easy and in-depth access to both.