Fundamental analysis one of two types of analysis conducted by traders and investors in the Forex market. The other type of analysis conducted by Forex traders is known as technical analysis. There are indicators in fundamental analysis, just like there are technical indicators, however in fundamental analysis, the indicators tend to be referred to as non-technical indicators.

Fundamental analysis helps Forex traders and investors, in predicting the price futures of currencies, by taking into account both political and economical factors of the countries of the currencies being analysed. Once you conduct your analysis, you can then use it to make more educated decisions and place potentially more profitable orders.

The main indicators in fundamental analysis are:

– Interest rates

– Gross domestic product (GDP)

– Trade balances

– Rate of employment

– Rate of inflation.

Interest rates tend to be the most important factor, when it comes to fundamental analysis. Interest rates directly affect the values of currencies. Different countries will of course have different interest rates. If a country raises its interest rates, then that country’s currency should increase in price, as investors will find the higher interest rates as more appealing. These foreign investments can come from anywhere. Interest rates should not be underestimated.

The gross domestic product, or GDP, of a country is also an important factor. Countries release their GDP results annually. Stronger GDP levels of countries will help to appreciate the values of the currencies from those countries. Similarly, if a country releases a lower GDP level, their currency will most likely suffer and devalue.

Trade balances measure the differences between the annual volumes of exports and imports of countries. If a country’s exports exceeds its imports, then that country’s currency will more than likely appreciate, as a result. If a country’s imports exceeds its exports, then that country’s currency will most probably depreciate.

The rate of employment of countries, will also affect the values of the currencies from those countries. A stronger rate of employment will generally increase the price of a country’s currency, in the currency market. If a country’s employment rate is weak, then its currency will likely decrease.

The inflation rate of a country will affect the country’s currency value too. A high inflation rate will be negative for both a country’s economy and currency. A steady increase in a country’s goods and services is perfectly natural and needed, for a healthy and steadily growing economy. Steady inflation increases are accepted and fine, as long as the inflation rates in question do not rise too high. Unstable and volatile changes in a country’s inflation rate will lead to an unstable and volatile value of the country’s currency.

In conclusion, there is much to learn about fundamental analysis, but except from keeping up-to-date with the news, you should study the: interest rates, GDP levels, trade balances, employment rates and inflation rates of the countries of the currencies you are working with. You may need to consider changing up your Forex trading tactics and strategies too, accordingly, as the FX market changes. All of the factors mentioned are important, but perhaps the most important factors are the interest rates and the GDP levels of the countries of the currencies you are trading.

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