Fundamental analysis is a way of looking at the market through economic, social and political forces that affect supply and demand. In other words, you look at whose economy is doing well, and whose economy is not. The idea behind this type of analysis is that whoever’s economy is doing well; their currency will also be doing well. This is because the better a country’s economy is, the more trust other countries have in that currency. For example, the U.S. dollar has been gaining strength because the U.S. economy is gaining strength. As the U.S. interest rates keep increasing, the value of the dollar continues to increase. However, this is only one part of analysis, and it might not be necessarily the case.
News or certain economic announcements will also affect the Forex market. In US, government reports of economic decisions or statistics are generally released before or after the New York Stock Market hours. US Forex market opens at about the same time. Rather than trying to trade on a fundamental interpretation of the report, it is recommended to avoid trading the opening hour on those days.
The main reason for understanding the fundamental of global currency is that it helps you to correctly identify the major trend of the currency pair you are trading and to anticipate changes in the trend when the underlying fundamentals change
Some of the factor that have an impact on currency value are:
- Release of Economic Data
- Adjustment of Interest Rates
- Intervention of Government or Federal Bank by Fixing the Currency Value
- Release of Inflation Data
- Release of Employment (Jobs) Data
- Sudden Breaking News