By Pima Laga – The forex trading business sees forex traders analyzing the markets through a myriad of ways and steps.
These are usually :-
* Fundamental Analysis
* Technical Analysis
* Both steps combined
While all 3 techniques boast their good points, a forex trader that has a stellar understanding about both technical plus fundamental analysis philosophy usually is able to secure a enhanced representation from the forex markets.
Fundamental analysis is dealing with the aspects that impact a particular currency. Driving aspects of the currency markets can be connected with economic as well as political aspects of the specific countries involved.
This is the prime basis of why the forex markets respond to economic news for example the retail sales, unemployment rates as well as non farm payrolls.
Whilst the economic state of affairs of a country really affects the performance of a particular currency, the domestic political situation is able to move currencies with good effect.
Aspects such as floods, disease as well as political change are all looked to as a driving weight for currency movement.
The trouble with fundamental analysis is simple. This type of analysis requires a good grasp of both micro and macroeconomics and market reaction to properly profit from it.
Decisions made by individual central banks and the monetary policies they come out with also drives the currency market greatly. How the markets react to such policies is normally alike despite of what central bank you are concerned with.
Decisions are made by fundamental traders based on these data. Key aspects such as interest rates and international trade are scrutinized carefully.
Price can move exceedingly quickly if the economic data released had a big impact on the specific currency. Volatile currencies such as the pound/yen can experiences spikes upwards of 100 pips if the data had a big impact.
Occasionally the markets can spike on both directions on after another.
A 100 pip movement both ways has occurred in the past. Particularly on volatile pairs like the Pound/Yen.
This is a basic overview on fundamental analysis as the topic is too big to cover in a single guide.
Needless to say, understanding about how markets react to economic aspects would further hone the forex traders skill set in this section. It also pays to observe future economic news releases as critical releases would certainly influence the forex markets.
About the Author
For further information on Fundamental Analysis along with Technical Analysis, please visit Pima’s forex trading website.
