Trade Share CFDs for your favourite companies and 50+ U.S. stocks. Click here.
Refer a friend
Title Icon

Intermediate

Have a basic understanding of Forex, but not sure how to
level up? We have got you covered.

Fundamental Analysis in Forex Trading Explained

Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency. This methodology is harnessed by potential investors to evaluate the relative future of a currency and make decisions based on that analysis. With fundamental analysis, you can examine currency pairs and evaluate exchange rate fluctuations in the Forex market.

What is fundamental analysis in Forex trading?

Fundamental analysis involves analysing the impact of various factors on the currency market, including economic, political, and social aspects. In Forex market fundamental analysis, traders keep an eye on news that affect market volatility that trigger potential trading or investment opportunities.

Economic indicators that affect fundamental analysis

Economic indicators are government data that states the economic growth of a nation. These fundamental indicators enable traders, analysts, and investors to assess current economic performances and predict future economic health. Since the economic health of a country is the prime factor for its currency exchange rate, stock market rates, crypto and CFDs market, the same can be identified through these economic indicators.

Consumer Price Index

The CPI measures the change in prices paid by consumers for goods and services during a specific time. A rising CPI means that the prices of goods and services have been increasing, which indicates inflation. This leads to a change in the government’s monetary policies as interest rates would also increase to curb the money flow in the economy. This would, in turn, strengthen the country’s position and attract investors and traders.

Gross Domestic Product

The GDP tells you the market value of all the services and goods produced within the country in a given time. It gauges the country’s economic health as it portrays the state of the country represented by a percentage rate. It represents the goods and services’ total market value along with the gross profit or loss that a country makes in a quarter or a year.

Retail sales

The Retail Sales data is different from the GDP as it gauges the consumer demand for finished goods by measuring the purchases of durable and non-durable goods. Moreover, services are excluded from this metric as this economic indicator measures catalogue, in-store, and out-of-store sales.

Industrial production

The industrial product is also a report that shows a production change in mines, utilities, and factories in a country. It reports the capacity utilisation of these institutions and helps identify how much a country is producing at a given period.

Key benefits of fundamental analysis in Forex

Gain a competitive advantage

Since fundamental traders research multiple factors influencing a currency’s exchange rate and fluctuation, they gain a competitive advantage over traders who do not conduct fundamental analysis. This is because fundamental analysis takes several factors into account simultaneously. Some examples include the country’s GDP, interest rates, employment level, housing sector, and more.

Spot ideal trades

Forex traders keep a close eye on economic news updates of several countries and identify ideal entry and exit points. Hence, they end up spotting the ideal trade opportunities that are often missed by most traders. For example, the US economy’s increased GDP is most likely to drive up the rate of USD, enabling Forex traders to buy more of the currency to take advantage of inflation.

Better information and risk managemente

Most fundamental traders believe that the data from fundamental analysis is quite reliable with respect to managing risk in the Forex market. This is because when you know the reason behind price fluctuations, you can better predict an asset’s movement. Since you have a better grasp on factors outside of market valuation to account for how a country’s currency will trade, it gives your predictions on trends and placing stop-loss orders a little more accuracy.

How to do fundamental analysis on Forex?

1. Research the country and currency you want to trade

It is essential that you understand the country’s economy of the currency you intend to trade. When you study a country’s economic background, political stability, and social conditions, you get an insight into the country’s economic health. This is your first step in deciding if you want to trade a specific asset or not.

2. Check for economic debt

The national debt of any country is known to be its number one public policy issue. When a country has high debts, its nationwide savings and income fall, interest rates increase, and the country's overall economic condition is not sound. However, a country with lower debts is considered more stable, which attracts traders and investors.

3. Find the currency’s top competitors

When you decide the currency you wish to invest in, it is advisable to study its competitors and find an alternate currency that might be performing better. It should have a solid future prospect, with the least ongoing market risk.

4. Analyse the currency pair’s future prospect

Fundamental analysis works well for trading long-term. After analysing the country’s growth prospects, GDP predictions and future plans, a trader can choose to invest in a currency that has a strong future prospect.

5. Monitor economic news and data regularly

Once you have invested in the currency pair of your choice, you need to monitor it timely. Keep a close eye on news updates about countries which currencies you trade, and check their financial performance.

Trade using fundamental analysis with Blueberry Markets

With fundamental analysis, you gain a better appreciation of the minute and sweeping details that can determine the fair value of the currency pair you want to trade. It’s an excellent way for traders to figure out which currencies they need to buy and sell, and which ones will potentially make them profit. Apply fundamental analysis with your trades at Blueberry Markets with our weekly newsletters, daily trade updates, and trading signal alerts. Sign up for a live account or try our risk-free demo account now.

Recommended Topics

  • What are Volume Indicators

    Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals

  • Shooting Star Candlestick Pattern

    The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.

  • Top Trading Chart Patterns

    Predicting future currency pair prices help in confirming market continuation and reversal signals.

  • What is Slippage in Forex Trading?

    Slippages occur when a currency pair order is executed at a price different from the set market order price.

  • Buy limit vs Sell Stop Orders in Forex

    Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.

  • The Best Time Frame For Forex Trading

    A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.

  • Top Technical Indicators in Forex

    Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations

  • Top Continuation Patterns

    A continuation pattern indicates if the current market trend is going to continue in the same direction or not

  • How to Ace Divergence Trading in Forex

    The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes

  • How To Trade Forex With Japanese Candlesticks?

    A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.

  • Top Momentum Indicators To Analyse Trend Strength

    Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is

  • Types of Moving Averages Every Trader Should Know

    Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.

  • 8 Popular Intraday Trading Indicators

    Intraday Trading Indicators help place successful short-term trade orders in the forex market.

  • What is the Tweezer Candlestick Formation?

    The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)

  • Average Directional Index

    The ADX is a strength indicator that measures how strong or weak a particular market trend is.

  • How to Use Elliott Wave Theory For Forex Trading?

    The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.

  • What are Pivot Points in Forex

    Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.

  • Keltner Channel

    Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.

  • Leading vs Lagging Indicators

    Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.

  • What is Relative Strength Index?

    Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.

  • Wide Ranging Bars

    Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.

  • Harmonic Price Patterns in Forex

    Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.

  • Double tops and bottoms

    Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.

  • Falling and Rising Wedges

    When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.

  • Forex Scalping Strategy

    Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.

  • Symmetrical Triangle Pattern

    Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.

  • Introduction to Technical Analysis in Forex

    Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.

  • Trading breakouts and fakeouts

    Breakout and fakeout trading enable traders to take positions in rising and falling markets.

  • 8 Top Commodity Trading Strategies

    Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.

  • What is a Doji Candlestick?

    The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.

  • Moving Average: The Complete Guide

    Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.

  • What is Volatility Index (VIX) and How Do You Trade It?

    One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.

  • Forex Profit Calculator

    On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.

  • Understanding markets gaps and slippage

    The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.

  • What is a pip in forex?

    When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.

  • Introduction to order types

    Order types in Forex trading determine and control how you enter and exit the market.

  • Using orders to manage risk

    Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.

  • Managing risk in 7 steps

    Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.

  • Bullish and Bearish Flag Patterns

    Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.

Learn Icon

Advanced

Master risk management and
become an expert forex trader.
Move on to the advanced course.

Guide to Forex
Trading indicators.

Enter your details to get a copy of our
free eBook

Thank you, please check your inbox for your ebook.

Ads BG

Start a risk free
demo account

News & Analysis

Catch up on what you might
have missed in the market.

Runner graphic

Ready to trade at
Blueberry Markets?

Your best trading experience
is a click away