August 11, 2017, 10:10:30 AM EST

by Newsmovesmarketsforex Staff Writer


Forex fundamental analysis is based on information about macroeconomic indicators which represent the economic condition of a country’s economy. These indicators influence the currency price of a country and determine its upward or downward movement.

The interest rates set by a country’s central bank, the GDP growth rate for the economy, and employment and trade figures are all considered during the fundamental analysis process.


What role does the interest rate play?

The major factor which needs to be taken into consideration is the interest rate. The monetary policy makers of the country are the ones responsible for setting the interest rate; it has a great impact on the value of the country’s currency.

The interest rate can also be used to control the level of investment in the economy. Investors are more inclined to park their money in local projects if the rates are increased. On the other hand, lowering of the interest rates can discourage investors from making investments.


How can Forex fundamental analysis help Forex traders?

Forex fundamental analysis is a useful instrument for studying the behavior of the Forex Market and can be used to predict emerging trends in the market. It can also help Forex traders use economic data to make better Forex trade deals.

Different currencies react in different ways to economic data and the Forex fundamental analysis can be used to assess the reactionary behaviors of various currency pairs in the market.

In order to conduct a proper Forex fundamental analysis, Forex traders must be well-aware of macroeconomic conditions. Economic data and news related to market conditions must be constantly monitored in order to make informed investment decisions. Economic news plays a vital part in determining whether the markets are dominated by bulls or bears.


The effects of economic data

It is the job of the central bank to create money and private banks within a country borrow money from it at a certain interest rate.

The borrowed money has a trickle-down effect on the entire economy and determines the valuations of various currencies. The money also has an effect of the economy’s health and is vital for ensuring its growth.

Previous records about the reactionary behavior of price action to major economic data can enable Forex traders to predict the price movements associated with a particular currency pair.

This is an example of how News Moves Markets Forex: 

Forex Fundamental Analysis played a key factor in predicting how the economic news release of the BOE interest rate decision impacts a currency rate

On consensus news release of the Bank of England (BOE),a high impact of the news of the interest rate decision was seen on the GBP/USD on August 3, 2017.The Pound immediately sold off within an hour from a high of 1.3269 to a low of 1.3211.




Factors affecting Forex fundamental analysis

Forex fundamental analysis is a potent Forex tool that helps Forex traders understand the working of the Forex markets in a better way. Forex traders must keep in mind that the analysis is based on the following key factors:

· The total manufacturing output of the country

· The trade data of the country

· The country’s GDP growth rate

· Global driving factors which influence the movement of international currency pairs.

· Geopolitical monetary policies

· Employment figures and other relevant data that affect the macroeconomic conditions of a country’s economy.



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Risk disclosure: 

Forex traders should be aware that investing or trading in the foreign exchange markets encompasses a great deal of risk and may not be suitable for everyone. 

Prior to investing money in the Forex market, you should access or consider your investment objectives, level of experience and risk appetite.  One should only use risk capital that is money that will not devastate or dramatically change your lifestyle in a negative manner. Traders should never invest money that you cannot afford to lose. And if there are any trading doubts one should seek the advice of a licensed financial Independent advisor.