Forex traders rely on fundamental analysis for their forex trading strategies. In this article we will discuss fundamental analysis. Another commonly used strategy is a forex technical analysis. This article should give you a better understanding of fundamental analysis and how to incorporate it into your FOREX strategy.

The FX market and other markets are controlled by basis economics, of supply and demand. Many factors can have an effect on the FX market. But there are two basic factors that effect, the FOREX market; they are interest rates and the strength of the economy. An economy strength is directly effected by, GDP, trade balances and the amount of foreign investments. These factors can strengthen or weaken a countries currency.

Economic and political changes are the foundation of the fundamental forex analysis. These changes typically have an effect or change on currency prices. When traders use this analysis, they gather their data from a variety of sources. There is really no trick to gathering the information. Information about growth rates, unemployment, inflation, political ideologies and economic policies can be found via government and academic sources. This information is released on a monthly or weekly basis.

These reports will give you the economic health of a country and their currency. The factors that should be analyzed for your fundamental analysis are: retail orders, interest rates, PMI, PPI, international trade, CPI and durable goods orders.

Interest Rates - Depending on the direction, it can either weaken or strengthen the currency. High interest rates can cause stock market investors to sell their assets. Typically, investors think that high interest rates will have an adverse effect for borrowing and could negatively, effect companies. Sometimes, high interest rate attract foreign investors and foreign currency.

Which of these two affects will take place? The answer must take into consideration many complex factors. But most economic observers will agree that interest rates will change the price of currency and economy.

International Trade – If there is a trade deficit (more widgets being imports than exported) is used usually viewed as a negative factor. Which would imply that more money is going out of the country to buy foreign goods and less entering the country. This could have a negative effect on the countries currency. Usually trade imbalances are factored into the market consideration. If a country operators with a trade deficit there should not be an affect on the currency price.

Other Factors to watch

CPI - cost of living

PPI - cost of producing goods

GDP – measures the value of all goods produced in a country

M2 – Money Supply, which measures the total amount of currency of a country

These are not all of the indicators to watch, but a good starting point. There are 28 major indicators for the US market. They can all have an effect on the financial markets and should be analyzed when developing your forex strategies.

A fundamental analysis will give you an overview and broad picture of economic conditions and currency movements. A majority of Forex traders use a technical and a fundamental analysis; in order to position their entrance and exit points. Then they confirm the decision with their data from their fundamental analysis.

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