Fundamental Analysis

The two primary approaches of analyzing currency markets are fundamental analysis and technical analysis. Fundamentals focus on financial and economic theories, as well as political developments to determine forces of supply and demand. Technicals look at price and volume data to determine if they are expected to continue into the future. Technical analysis can be further divided into 2 major forms: Quantitative Analysis: uses various statistical properties to help assess the extent of an overbought/oversold currency, Chartism: which uses lines and figures to identify recognizable trends and patterns in the formation of currency rates. One clear point of distinction between fundamentals and technicals is that fundamental analysis studies the causes of market movements, while technical analysis studies the effects of market movements.

Fundamental analysis comprises the examination of macroeconomic indicators, asset markets and political considerations when evaluating a nation’s currency in terms of another. Macroeconomic indicators include figures such as growth rates; as measured by Gross Domestic Product, interest rates, inflation, unemployment, money supply, foreign exchange reserves and productivity. Asset markets comprise stocks, bonds and real estate. Political considerations impact the level of confidence in a nation’s government, the climate of stability and level of certainty.

For basic Fundamental Analysis theories, as well as in-depth analysis of some of the recent forex market developments, please see "Foreign Exchange Markets: A Practical Guide", an innovative approach to covering FX fundamental and technical analysis.

These articles are designed to help traders understand the unique benefits of trading with DealStation. Articles contain hypothetical examples that have been created for illustration purposes only.

The opinion of the writer does not necessarily represent the view of MG and must be considered as an opinion and not fact.