What is Fundamental Analysis?
We’ve already given you a small introduction to fundamental analysis when explaining about buying and selling currencies. If you forgot, here it is again.
Whenever you hear people mention fundamentals, (you know your friends might bring it up over coffee) they’re really talking about the economic fundamentals of a currency’s host country.
In simple words: these are the economic, political or environmental reports, data, announcements or events.
In online trading, you will use Fundamental analysis or all these factors to forecast future price movements of currencies. In particular, fundamental analysis provides insight into how price action “should” or may react to a certain economic events.
And based on that, you can decide whether you should buy or sell a given currency pair. Got lost? Let's try with an example:
Let us assume that U.S unemployment data is about to be released, if the unemployment rate goes up (that is more people are unemployed) it shows weakening of the U.S economy and the U.S Dollar.
Thus, traders may be interested in trading against the US Dollar. The opposite is true as well, if unemployement goes down the US Dollar may strengthen. Thus, traders may be attracted to buy US Dollar against other currencies.
Simple as that!!!