Welcome to our guide on fundamental analysis in the field of Forex. The fundamental analysis of Forex is the best study method for everything that happens in the financial markets.
Because it is a significant subject, we have decided to provide you with an excellent essential guide to the fundamental analysis of Forex. Stick to the article to find out.
Forex Fundamental Analysis: The Basics
Fundamental analysis in the Forex market is also called “macroeconomic analysis.” Professionals in the sector use this type of study to predict the medium and long-distance time frames. It is used to understand the prices of goods, securities, and currencies in international markets.
The fundamental analysis is always carried out by professional analysts. They can describe economic events. They can imagine the repercussions that they have and will have on the Forex market. We enter more specifically in the following paragraphs.
The Fundamental Analysis of Forex: Economic Indicators
Now we are going to talk about what the economic indicators are. Fundamental analysts keep them in close control to make their type of analysis. The indicators are essential because you have to look at them whenever you want to understand how a currency will behave. For example, if your value will rise or fall compared to those of other countries.
Gross Domestic Product or GDP
GDP is nothing more than a country’s gross domestic product. GDP is the sum of all goods and services produced by a nation over the year. If the GDP is positive, it means that the given economy is strong and healthy. If instead the GDP shows the minus sign or settles on the 0, it is not a pleasant fact.
Employment data provide information on what a country’s workforce is, how it is distributed, and what are the forecasts for the future. This figure shows how many jobs have been lost and how many have been earned.
When the economy turns in the right direction, there are no unemployment problems. Then the value of GDP increases and people are all employed or at least the vast majority of them.
Enormous importance for Forex lies in the inflation figure. The Consumer Price Index and the GDP deflator measures this value. Inflation is related to the purchasing power of a currency. This affects its exchange rate in proportion to other currencies. If the economy is developing, the consumer price index rises and interest rates rise. The currency consequently acquires a higher value.
The Balance of Payments
We are talking about the difference between the income and expenditure of foreign currency versus national currency. It is jointly determined by the “import-export” balance and capital movements. In general, when the payments received in the state budget exceed those sent, then things turn well, and the currency should be stable.
it represents the overall value of the debt accumulated over the years by a state. It should not be confused with the “deficit.” The deficit is the excess of expenditure on revenue in one year only.
The study of macroeconomics or fundamental analysis on Forex is very complex and fascinating at the same time. The data is based on expectations of future growth or production. These data are not only used for trading but are considered by national governments to make economic policy decisions.