AFTER last week’s focus on technical analysis in forex – where I looked at how analysing charts and data trends can assist a trader’s performance – this week, I’ll consider another important element in trading forex: fundamental analysis.
Fundamental analysis is the interpretation of statistical reports and economic indicators. Interest rates, employment reports, and the latest inflation indicators, for example, all fall into the realm of fundamental analysis. It is imperative that forex traders pay close attention to economic indicators, as they can have an immediate, direct, and – to some degree – predictable effect on the value of a nation’s currency.
IMPORTANCE OF TIMING
Given the impact these indicators can have on currency rates, it is important to know when they are due for release. As such, you should regularly keep or consult an economic calendar from sources like MarketPulse.com. This details timings of these important releases, as well as featuring analysis of each.
Two of the most influential economic indicators are a country’s employment report – especially the non-farm payroll (NFP) in the US – and Gross Domestic Product (GDP). The former has an immediate impact on currencies because employment levels directly affect current and future spending habits. An increase in unemployment is a negative indicator, as it implies that more people are not receiving a regular salary – a sure signal that consumer spending will decline.
GDP measures the total value of all goods and services produced by a country during the reporting period. An increase in GDP indicates a growing economy and, for this reason, GDP is used to measure the level of inflation within the economy.
Mobile technology platforms, like OANDA fxTrade Mobile for instance, are an increasingly important weapon in the active trader’s arsenal. These platforms not only enable traders to keep up to date on economic data via real-time news alerts, but traders can also manage positions anywhere anytime (within standard market hours) in response to the latest news and market events.
To build your fundamental analysis knowledge, visit www.MarketPulse.com. To find out more about the ins and outs of fundamental analysis, visit fxtrade.oanda.co.uk/learn/intro-to-currency-trading/fundamental-analysis.
Paul Hayward is head of sales at OANDA Europe.
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