Learn about Fundamental Analysis in Forex Trading - ForeXposed

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Tuesday, October 24, 2017

Learn about Fundamental Analysis in Forex Trading

Learn about Fundamental Analysis in Forex Trading
Now, we will study another part of forex analytics. The art to predict currency movements by looking at the psychological market and news that may be affected. Well, this time we will learn about Fundamental Analysis.

If you ever try to trade using a purely technical analysis, you will know that, at certain hours, usually at night, the technical analysis is often not functioning properly. When all indicators are indicating that the prices will move up, but the fact, all of a sudden, the price move down dramatically without any reason.

In the first few months studying forex trading, I often experienced this. At certain hours, it looks like the prices are not following the laws of technical analysis and tend to move without a reason. After a long study, I finally understand that these factors exist named the psychology of the market or market sentiment, or whatever its named, and clearly influenced by news and rumors circulating in the market.

Fundamental analysis is the analysis of special section examines this kind of matters. Basically, the fundamental analysis combines news in the sectors of the economy, politics, and security in a country, with the market reaction, to be able to find out where the price is about to move.

The Keywords to this analysis is in two words, namely the Demand and Supply. Basically, the market is also human. By measuring the number of traders who do Buy Action (demand) or vice versa Selling Action (supply) then we can figure out where the price will move.
Learn about Fundamental Analysis in Forex Trading

If the demand increases while the supply still then generally the price will soon go up. Likewise, when the supply increases but the demand still, then the prices will start to fall because there are many goods circulating in the market. This two thing is what to try to know by fundamental analysis.

Well seeing as it is all done by the participants of the market, then as well as the masses psychology, it's also happening in the forex world. When the economic news emerged, for example, which reported that the currency of a specific country tends to be weakened, then the fundamental analysis is using to analyze the news that will appear, and anything to do with the market reactions. 

Sometimes, the market is often driven by incidentals emotion. Sometimes, without any economic news. Usually, this is due to the shift of demand-supply, due to certain parties who do Buy Actions or Sell Actions.


The Types Of Fundamental News

Previously, have been explained that in the fundamental analysis the factors that most plays is named as NEWS. Most of the fundamental news that plays a role in determining the up and down of the currency rate is economic news. Information such as the unemployment rate, consumer price index (CPI) or other is that determines whether a currency will be strengthened or weakened precisely against other currency pairs.
Learn about Fundamental Analysis in Forex Trading

Most of the news leads to up and down of inflation in a country. In a situation where inflation starts to rise, usually, the central bank will raise interest rates. The rise of country interest rates usually will be followed (however large) on its currency. Logically, this can be caused by the banking sector that also raises the interest rates, including rates on savings and deposits. 

This has sparked a growing number of funds collected in the bank so that the money circulation in the market will be reduced. According to the law of demand-supply, when supply is reduced then the price will increase. Even if the banks in that country did not enter to adjusting the interest rates, traders psychology view remain. As a result, they were soon doing the buy action that will lead to increased demand. It is becoming a kind of self-prophecy of what market trust.

In forex trading, up or down of interest rates is a final decision, where previously initiated by the inflation data at the level of the consumer and the manufacturer. This news will first affect the movement of the currency, so you should not assume that the only most important news is the rising of interest rates.

There are dozens of fundamental news which could affect the future market movements. There is important fundamental news to note, there is also fundamental news that is not necessary at all, due to various factors. In this case, it is indeed important to sort out the fundamental news that is important and not important. We will learn it in the next discussion entitled fundamental news filters.