What is Fundamental Analysis?

You've undoubtedly come across Gulliver, Frodo, and the concept of fundamental analysis in your travels.

During Kindergarten, we gave you a sneak peek of fundamental analysis! Now let's get down to business!

I'm not sure what it is, and I'm not sure if I'll need it. Fundamental analysis, on the other hand, is the study of fundamentals!

Wasn't that a piece of cake？

There's actually a lot more to it. There's so much more.

When individuals talk about fundamentals, they are referring to the economic factors of the currency's host nation.

Economic fundamentals refer to a wide range of facts, reports, announcements, and events, whether they are industrial, political, or environmental in nature.

Even a credit rating drop is considered fundamental data, and Pipcrawler was able to transform this news into a profitable short EUR/USD trade.

The application and study of these aspects called fundamental analysis.

It's the study of what's happening in this world and around us in terms of economics and finance, with an emphasis on how macroeconomic factors (such as economic growth, inflation, and unemployment) impact whatever we're trading.

Fundamental Data and Its Many Forms

The study of economic trends and geopolitical issues that may impact currency values is known as fundamental analysis. To put it another way, it's the study of financial and economic news.

The following are the most essential economic indicators to keep an eye on:

• Interest Rates

• Inflation

• GDP (Gross Domestic Product)

• Employment Data

Fundamental analysis delves deep into how price action “should” or may react to a certain event or incident when new data is published.

Fundamental information can take many distinct forms.

It might be a Fed report on existing house sales in the United States. It may also be possible that the European Central Bank will alter its monetary policy.

The public publication of this data frequently alters the economic landscape (or, better yet, the economic psyche), causing investors and speculators to respond.

Even if no specific report has been produced, the expectation of such a report is an example of fundamentals.

Interest rate rise predictions can be “priced in” hours or even days before the official announcement.

Currency pairings have been known to fluctuate 100 pips only seconds before important economic news, allowing for a rewarding trading opportunity for the bold.

That's why, before key economic releases, many forex traders are on their toes, and you should be too!

Economic indicators provide for a significant component of the data utilised in fundamental analysis. Economic indicators, like a fire alarm blaring when it detects smoke, provide some insight into how well a country's economy is performing.

While knowing the specific number of an indicator is crucial, the market's expectation of that number is just as significant.

The most crucial component is to comprehend the influence of the actual figure in contrast to the anticipated amount. When selecting to trade, all of these considerations must be taken into account.

Don't be concerned. It's easier than it appears, and you won't need to be an expert in rocket science to figure it out.

I recommend that you go to Pip Diddy's daily economic summary every day to remain up to date on the latest economic news.

Fundamental analysis is useful for forecasting future economic circumstances, but not so much for anticipating currency price movement.

Because fundamental information in the form of reports, economic data releases, or monetary policy change announcements is more ambiguous than technical indicators, this type of analysis has a lot of grey areas.

“An increase in the interest rate of that percentage MAY led the euro to rise,” says the typical analysis of market releases and reports of basic data.

“With an indicator value in that range, the US dollar SHOULD fall down.”

“Since the prior study, consumer confidence has dropped by 2%.”

Heres an Economic Report, Now What？

The economy has a proclivity for reacting to how people feel. These emotions can be based on how they react to economic information or how they interpret current market situations.

And, you got it, there are a slew of individuals, each with their own set of emotions and viewpoints.

“There's a high degree of uncertainty in basic analysis!” you're probably thinking.

You're absolutely correct.

Because of fresh fundamental facts, it's impossible to predict exactly where a currency pair will go.

That isn't to imply that fundamental analysis isn't important.

Not in the least.

The sheer number of essential data accessible makes it difficult for most individuals to put it all together.

They comprehend a single report but are unable to apply it to the larger economic picture. It only takes some time and a better knowledge of the facts.

Furthermore, because most basic data is only given for a single currency, basic data for the other currency in the pair would be required and compared to obtain an accurate picture.

It's all about pairing a strong currency with a weak one, as we've said from the start.

You're probably still waiting for an answer to the question “Will I Ever Need to Use Fundamental Analysis to Become a Successful Forex Trader？” at this point.

We are fully aware that purists exist on both sides.

Short-term forex traders' favourite approach appears to be technical analysis, with price action as their primary emphasis.

Fundamental analysis is also popular among intermediate and medium-term traders, as well as certain long-term traders, because it aids in currency valuation.

We prefer to be a bit out there by recommending that you utilise BOTH!

When a big fundamental event happens, technical-focused solutions are blown to bits.

Pure fundamental traders, on the other hand, miss out on the short-term chances that pattern formations and technical levels provide.

All viewpoints are covered with a mix of technical and philosophical analysis. You're aware of upcoming economic events and releases, but you can also recognise and apply the different technical tools and patterns that market participants pay attention to.

I've got a couple of trading examples for you that demonstrate how the right mix of fundamental and technical research may lead to massive gains.

Take a look at a massive EUR/JPY victory and Happy Pip's 115-pip profit on NZD/USD.

That's all there is to it!

We'll talk about the primary fundamental elements that influence currencies in this course.

Interest rates, monetary policies, and market-moving economic news are all examples.