In the financial world, fundamental analysis plays a vital role in valuing everything from corporate stocks to real estate. Fundamental analysis is the main mechanism for investigating the seemingly random nature of exchange rate fluctuations for international forex market transactions.
As in the forex financial market, we have three types of analysis. Forex technical analysis, Forex fundamental analysis and Forex market sentiment analysis.
Here we are going to go from financial market analysis, review fundamental analysis in forex and explain to you.
What is Forex Fundamental Analysis?
Fundamental in the analysis process is the analysis of political, economic and social factors, on the relative value of a currency. By identifying the main drivers of a currency’s intrinsic value, forex participants can then make informed trading decisions.
Technical work is examining price charts and analyzing charts to identify patterns or trends, fundamental analysis includes economic information and news headlines.
You should be able to understand the factors that may affect the economy and monetary policies of a country, such as an increase in the unemployment rate, inflation and GDP, which will ultimately affect the level of money for that country.
The idea behind this type of analysis is that if a country’s current or future economic outlook is good, it should strengthen that country. The better the economy of a country, the more businesses and foreign investors will invest in that country. This requires the purchase of currency in that country, in order to lose the assets of that country.
Forex fundamental training:
Here we try to show you a step-by-step guide to learning Forex Fundamentals in an almost comprehensive way. It is hoped that after reading this section, you can identify the factors affecting the forex market. After that, you will discover a suitable market for you in Forex, and start trading it.
Our instruction consists of two simple but comprehensive steps. The first step is to examine important macro-economic factors and the second step is to examine issues and factors of political countries.
The first step is to examine important macroeconomic factors. To create wealth, we need analytical analysis. To create a structure, we must first define it. Our fundamental analysis will include the study of macroeconomics in the world.
Let’s create the context of this at the highest level so that we can filter the data and achieve the dynamics of currency pairs to their lowest level. In doing so, we examine cyclical dynamics, the monetary policies of major central banks, and a few other indicators.
The past behavior of monetary institutions has a lot to do with their future choices. This is why you should consider historical data when analyzing the future direction of the markets.
The first stage is relatively simple because during a boom, volatility decreases and liquidity becomes abundant on a global scale; In times of recession, the opposite of this story is true. However, it is very important for a trader to be able to separate rumors or market noise from the data.
If she cannot do this, she becomes a victim of political or media issues and her analysis fails.
During the first step, the most important factor to consider is the interest rate published by the central banks of the countries. In a healthy and growing economic environment, higher interest rates tend to increase the value of the currency, while lower interest rates tend to depreciate the currency.
The next factor is inflation. If a country is in an inflationary economic cycle, the measuring tool is the CPI and PPI indicators, that country keeps the interest rate low to prevent the increase and exacerbation of inflation.
The next important factor is the trade balance of the country. Having a trade surplus or trade deficit both affect the value of a country’s currency. The next important valid issue is a country. If a country borrows a lot from another country or the International Monetary Fund, that country must reflect this debt.
The next important factors to be examined are as follows: GDP, commodity prices, factory-related products, industrial production of a country, retail sales index, consumer price index, producer price index, unemployment rate and related data. To that. to housing and construction, the amount of buying a country’s stock by foreigners, etc.
Before we leave the first step, it is necessary to mention that the price of the product should also be considered in this part. The price of key commodities such as gold and oil has a great impact on the value of currencies. For example, high oil prices help the Canadian dollar and the British pound, and hurt the US dollar and the Japanese yen.
The second step you should pay attention to in fundamental analysis is political factors. With stable governments, their aspirations are more popular. At the same time, tensions and possible wars will affect the value of the currency.