One basic form of analysis that is commonly used in the forex market is called Forex Fundamental Analysis. This method is applied to determine any changes in currency prices using economic, social, and political factors.
Fundamental analysis observes the overall condition of a country, which is vital to formulating a suitable strategy before placing a trade. Indicators such as PMI, PPI, ECI & real estate stats etc. all provide valuable information for traders.
Here, take a look at the major factors in the fundamental analysis that are taken into account to identify any market predictions & trading risks.
Governments or private organizations release reports that show a country’s overall economic condition. These reports are the economic indicators that reveal any changes in a nation’s economy. The reports show any improvement or downfall in a nation’s economy. Each indicator serves a unique purpose.
From the economic indicators, we may see how the security and forex markets are being affected. These economic reports also include unemployment rates, financial market news, political updates, bank information, etc., required to predict a favorable situation for trading.
Gross Domestic Product (GDP)
GDP represents the total amount of all the goods and services produced by a country annually. The GDP figure is another indicator that shows the overall market condition of the nation.
Most traders ask for the advance report and the preliminary report before focusing on the GDP figures and then doing a final analysis. In this way, they can strategize their trading plans to gain a significant profit as an outcome.
This report is used to identify any changes that take place within a country in its production of factories, mines, & utilities. The market fluctuations noticed in these elements can directly impact a nation’s exchange currency rates and, as a result, will affect your trading.
Traders use this indicator to understand in which direction the market will shift. The result observed will indicate how you need to strategize your next step in trading.
Consumer Price Index (CPI)
The CPI measures any level of change in the prices of total consumer goods. This report is compared to a nation’s entire exports done annually. This report will tell you how much money a country has profited or lost on its products and services.
This CPI report will analyze a nation’s overall strength or weakness in its currency rates.
The Importance of Economic Indicators
Forex fundamental analysis is so crucial when analyzing the market. The economic indicators serve as a strong base for you to take any trading-related decision. It is vital to follow an economic calendar with lists of indicators and related statistics that show important changes. Keep observing the market and the manipulation of each indicator. Check the inflation rates as it can cause price and volume movements.
The Bottom Line
There are many such categories of economic indicators, that can be used to evaluate forex fundamentals. Take time to know how each indicator affects a nation’s economy.
Without these indicators, Forex’s fundamental analysis becomes difficult and quite impossible to predict any accurate market movement. These resources define the ultimate decision of any currency trader.