Fundamental Analysis is a term that refers to the act of entering into forex trades which are based solely on global elements that impact the supply and demand of currencies and other asset types. Most who trader FX will utilize both fundamental and technical analysis to establish when and where to enter the market. It is not uncommon for a trader to prefer one type of analysis over the other, but in reality, they should be used in conjunction to achieve the best results. Look to the following key sources for information on how and why asset prices may climb or fall in the near future.
Central banks tend to be among the most unstable resources for fundamental-based forex trading. The variety of actions they may take at any given time is substantial. They can increase or decrease interest rates (or make no change at all), hint that their current stance will soon change, unveil new policies, revalue currency, and more. The analysis of central banks often involves reading through statements and speeches, along with making an attempt to predict their upcoming movements.
Trading on economic releases can be challenging and stressful, but can also be profitable. Even the greatest financial minds have a tough time forecasting precisely what an economic release will inevitably end up stating. Many traders have a tendency to side with the opinions of the majority of experts, and because of this, markets tend to move in the direction of the general consensus prior to the release. If the general opinion is the opposite of the actual final result, the market then typically shifts in accordance with the actual result.
Unfortunately, world peace has still not be achieved, which means that conflicts or wars do occur. Geopolitical tensions and conflicts often have a negative influence on physical goods by altering the supply and/or demand them. Take oil for example. Conflict involving major oil-producing countries can cause a decrease in supply, which leads to an increase in price. The ability to predict exactly how global tensions will impact asset prices is one that FX traders will want to develop.
Climate & Weather
A number of climate and weather-related events can have an impact on asset prices. Winter storms, hurricanes, floods, tornados, and other extreme modes of weather can directly impact the price of a variety of goods, especially commodities. Obviously, the weather can be tough to predict far in advance, but this doesn’t mean that you cannot turn to weather forecasts in search of prospective trade opportunities.
Trading on fundamental factors can be challenging, but can also be rewarding. It takes a trader who is comfortable with taking on high levels of risk to trade exclusively on these types of factors and this method is not recommended. Instead, consider looking to these sources for opportunities, jumping into the market when optimal points of market entry appear. The combination of fundamental analysis and technical analysis is a powerful one. Used together and used correctly, you’re much more likely to reach your forex trading profit goals.