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1. How Fundamental Analysis Helps In Trading Forex

2. In forex trading, there are two main types of analysis:
fundamental and technical. This article will focus on
what fundamental analysis is all about, which tools will
help you conduct fundamental analysis, and how it can
be applied to catching profits in the currency market.

3. When traders talk about fundamental analysis, they are
referring to the study of economic and political factors
that affect price action. Sometimes natural phenomena
can also be added to the mix, as it also affects the
economy. Traders usually zoom into the economic
reports and indicators on whether the economy is
growing or contracting. Because of that, economic
releases usually result to reactions from the currencies
involved since the data reveals if the return on the
country's assets will increase or not and if demand will
be high or low.

4. In particular, forex traders usually watch out for the
release of major economic reports such as the GDP or
gross domestic product, CPI or consumer price index,
and other figures that give a comprehensive view on the
economy. In addition, central bank statements which
dictate monetary policy also impact forex movement.
When a central bank says that they will hike rates or
tighten monetary policy, it usually leads to a higher
return for the domestic currency which also means
higher demand. On the other hand, when a central bank
says that they will cut rates or loosen monetary policy, it
usually results to lower return for the domestic currency
and hence lower demand.

5. Applying these kinds of analysis in forex trading is simple
if you have a forex calendar. This calendar shows the
events that you should expect and the potential impact
on the currency pair. It shows if the particular release
will result to a strong reaction from the currency
involved or it might provide hints for bigger-tier events.
For example, the gross domestic product is usually
followed by a large reaction in price because it shows if
the economy grew or not. On the other hand, smaller-
tier reports such as manufacturing production simply
give hints on whether the GDP might be strong or not,
and thus has limited impact on price movements.

6. Above all, fundamental analysis also requires taking the
longer-term perspective into account. This helps the
trader determine if the report will have a lasting and
long-term effect on overall price action or if the reaction
will fade within the next few hours.

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