As we mentioned previously, fundamental analysis is an approach to analysing the market by looking into the social, economic, and political issues that may affect a country and its currency.
These are all vital components that drastically influence the supply and demand of the currency, so it is worth keeping an eye on them for the periods that you’re trading.
Fundamental analysis vs technical analysis
The main style of analysis that we have covered in this course has been technical. This is the use of indicators, oscillators, as well as the analysis of price action and candlestick reading.
While this is great for short/medium term trading, fundamental factors will always have the biggest effect on the markets.
Truth be told, most traders ignore the fundamentals of the currencies that they are trading. The general argument is that they do not need to concern themselves with macroeconomics while they are trading the smaller time frames.
While there is certainly some logic to this, it is a flawed and naive outlook. The more knowledge we have and the better understanding we have of the markets, the better.
Fundamental analysis can help us to identify potentially turbulent times in the market, shifts in sentiment, and times of great uncertainty – all of which are situations we would be better off watching from the sidelines.
Trading using technical analysis alone is kind of like trading with one eye open. Eventually, you will miss something and run into an unpleasant surprise.
After all, the support and resistance lines you draw on your chart are no match for a central bank adjusting its interest rate or a shock referendum result (ahem, Brexit).
So how do you keep up with all of these events? Well, the good news is that you don’t need to be an Oxford certified economist. After all, this is “fundamental analysis” not expert, in-depth analysis.
You can simply follow an economic calendar to keep an eye on all of the key dates and important events that happen in the forex world.
An economic calendar is one of the most important tools for traders who wish to keep an eye of the market fundamentals. It essentially lists all of the major economic events that occur across the globe in one easy to read format.
Rather than trolling through all of the news sources yourself and creating your own diary, you can simply take a look at an economic calendar and see all of the important upcoming events for the currency pair you’re trading.
Some of the things that a good economic calendar will list are:
- Interest rate changes
- Central bank announcements
- Political elections
- Economic indicators (GDP, CPI, employment rates etc.)
- Company quarterly earnings reports
- Key speech dates
This is a massive time saver. It brings together all of the information you need in one place. With some economic calendars, you can even filter the results to display the exact event you are looking for. Very handy.
Tip: Even with the use of an economic calendar it is still better to stick to one or two currency pairs when you first start out. It’s easy to get overwhelmed and fall into a state of analysis paralysis. Save yourself the hassle and knuckle down on one pair and become a master of that before you move on.
If you really want to get your teeth stuck into the fundamental analysis by keeping your ear to the ground on the latest of the forex markets then you will need to find a good news source.
Market news and data are available through many sources, you won’t be hard-pressed to find the information. If you prefer to use the TV to get your news then you will likely find some around the clock coverage on the markets.
Other than that, the internet is your best bet. Stick to the larger and more reputable sources for the most reliable information. Here are some examples of good sources for forex news.
- The Wall Street Journal
- UK Investing