The Authority’ on Price Action Trading. In 2016, Nial won the Million Dollar Trader Competition. Part 5: What is Fundamental Analysis? Fundamental analysis is the study of how global economic news and other news events forex price action vs indicators of economic growth financial markets.
The idea behind fundamental analysis is that if a country’s current or future economic picture is strong, their currency should strengthen. A strong economy attracts foreign investment and businesses, and this means foreigners must purchase a country’s currency to invest or start a business there. For example, if the Australian economy is gaining strength, the Australian dollar will increase in value relative to other currencies. One main reason a country’s currency becomes more valuable as its economy grows and strengthens is because a country will typically raise interest rates to control growth and inflation. Now, let’s quickly go over some of the most important economic events that drive Forex price movement.
This is just to familiarize you with some more of the jargon that you will likely come across on your Forex journey, you don’t need to worry too much about these economic events besides being aware of the times they are released each month, which can be found each day in my Forex trade setups commentary. The GDP report is one of the most important of all economic indicators. It is the biggest measure of the overall state of the economy. The GDP number is released at 8:30 am EST on the last day of each quarter and it reflects the previous quarter’s activity. Trade balance is a measure of the difference between imports and exports of tangible goods and services.
The level of a country’s trade balance and changes in exports vs. It’s better to have more exports than imports, as exports help grow a country’s economy and reflect the overall health of its manufacturing sector. The CPI report is the most widely used measure of inflation. This report is released at 8:30 am EST around the 15th of each month and it reflects the previous month’s data. CPI measures the change in the cost of a bundle of consumer goods and services from month to month. Along with the CPI, the PPI is one of the two most important measures of inflation. This report is released at 8:30 am EST during the second full week of each month and it reflects the previous month’s data.