Beginners Guide to Fundamental Analysis in Forex Trading

  • Beginners Guide to Fundamental Analysis in Forex Trading

The ones trading in the foreign exchange market (forex) depend on the same two basic forms of analysis which also apply to the stock market: fundamental analysis and technical analysis. The uses of technical analysis in forex are also largely similar where the price is believed to be a reflection of news, and the charts are the ones that need to be subject to analysis. However, contrary to companies, countries don’t come with a balance sheet, hence, how does one carry out fundamental analysis on a currency? Visit MultiBank Group

Given that fundamental analysis deals with looking at the inherent investment value, its application in forex includes assessing the economic conditions which may have an impact on the country’s currency value. Here are some of the major fundamental factors which affect a currency's movement.

Economic Indicators

Economic indicators refer to reports released by the government or a private organization that outlines a country's economic performance. Economic reports are used to measure a nation’s economic health but bear in mind that there are several factors and policies which can affect a nation's economic performance. Visit مجموعة ملتي بانك

Gross Domestic Product (GDP)

GDP is known as the broadest measure of a country's economy, and it stands for the overall market value of all goods and services which a country produces in a year. As the GDP figure itself is often believed to be a lagging indicator, a majority of traders emphasize on two reports which are rolled out in advance before the final GDP figures are released: the advance report and the preliminary report. Important revisions between these reports could lead to major volatility. The GDP remains analogous to the gross profit margin of a publicly traded company in the sense that both of them are measures of internal growth.

Retail Sales

The retail-sales report calculates the overall receipts of all retail stores in a certain nation. This measurement is carried out using a diverse sample of retail stores in a country. The report is an essential timely indicator of broad consumer spending patterns which gets adjusted for seasonal variables. It may be used to speculate the performance of key lagging indicators and to analyze the immediate direction of an economy. Revisions to complex reports of retail sales could make the market volatile. The retail sales report could be compared to the sales of a publicly-traded company.

Industrial Production

This report depicts a change in the production of factories, mines, and utilities in a certain nation. It even throws light on their "capacity utilization," the extent to which a factory's capacity is utilized. It is best for a country to witness an increase in production when it remains at its peak or near peak capacity utilization.

Traders who operate this indicator are typically associated with utility production, which may turn out to be highly volatile as the utility industry, and in turn, the trading, as well as demand for energy, is deeply impacted by weather changes. Visit MultiBank Group

Consumer Price Index (CPI)

The CPI is a measure of change in the rates of consumer goods in all over 200 different categories. This report, when taken into account against a nation's exports, could be helpful in seeing whether a nation is earning or losing money on its products and services.