All Forex traders can be divided into two categories: traders who are interested in long-term currency fluctuations, and traders who pay attention on the short-term changes. In order to predict the behavior of the Forex market and currency rates, traders of the first category, use the methods of the fundamental analysis. A second group of FX traders mostly use a technical analysis, making an analysis of the market through the use of mathematical modeling methods and graphs.
The fundamental analysis of the Forex market takes into account the “human influence”, i.e., macroeconomic and political factors. In other words, fundamental analysis is a thorough assessment of important events and news happening in the world. Fundamental analysis is based on a study of the fundamental trends in the specific countries, including economic, financial, social, and monetary policy. Thus, a trader who is interested in the long-term investments must study the fundamental factors – factors that have a significant impact on the formation of prices (price factors).
We have just given a general meaning of fundamental analysis. And what is the fundamental analysis in the Forex market? Fundamental analysis in the Forex market involves a set of techniques aimed to predict the price behavior. Prediction is based on the situation in the country, because its government is directly connected to the national currency. Many different factors affect prices formation, such as geopolitical, as the domestic political situation.
It should be emphasized that important world events also have a strong influence on the price changes. For example, military actions in Iraq had a great affect not only on the price of the USD, but also on the prices of other world currencies. Thus, all methods of fundamental analysis must be based on a systematic research of the economical situation of the world’s leading countries.
In our further articles we will reveal main methods of Fundamental analysis and how different factors influence currency prices.