Use fundamental Analysis to Predict Forex Movements

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Use Fundamental Analysis to Predict Forex
Movements

• Presented byThe Forex Secret

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Fundamental Analysis
The core belief behind fundamental analysis is
that it can identify a currency that is mispriced
and will eventually correct itself.
This is part of the reason why fundamental
analysis is generally better at predicting
longer-term price movements, although it does
have its uses for short-term strategies.
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• There are a few key drivers to the price of
  currencies that should always be at the forefront
  of any fundamental analysis.

• Economic Growth
• Inflation
• Interest Rates
• Trade and Capital Balance
• Employment and Wages
• Geopolitics

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Economic growth

• State and performance of a countrys overall
  economy
• Centered on data like gross domestic product
  (GDP)
• measures whether the economy is growing or
  shrinking, and at what rate.

When an economy is improving it generally
translates to a stronger currency as it attracts
investors to their financial markets, whereby
traders have to use local currency to buy stocks
or other financial assets in the country.
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Inflation

• How fast the price of goods and services is
  rising affects monetary policy
• Such as the likelihood of rising interest rates,
  which in turn weighs on exchange rates.

The main measures of inflation to consider are
the retail price index (RPI) and consumer price
index (CPI)
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Interest Rates

• One of the biggest bearings on the forex market
• Higher interest rates generally lead to a
  stronger currency

It attracts investors to invest their money in
savings accounts or other instruments to benefit
from the higher savings rates on offer,
increasing demand for local currency
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Trade and capital balances

• With the forex market international by nature,
  changes in the amount of money
• Trade flowing in and out of a country will impact
  its currency
• A currency of a country heavily reliant on
  exports will fall if those exports drop, for
  example.

For capital, any signs that investors and traders
are tacking their money out of the country could
be a sign that sentiment is changing, or
vice-versa if the flow of investment is growing
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Employment and Wages

• The level of employment can be correlated to the
  overall strength of an economy
• But the movement in wages is equally important.

Although rising employment signals that an
economy is strengthening, stagnate wages can
suggest disposable incomes and the state of the
publics personal finances are not performing as
well (or vice-versa)
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Geopolitics

• To the swathe of economic data, developments in
  the political world also weigh on the forex
  market.

With currencies representative of their country,
the exchange rate is swayed by government
politics and international relations, shaken up
by disturbances to the political status quo
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