The goal of a forex trader is to make profits. To achieve this, one must make wise trading decisions to reduce the risk of loss. This is where forex market analysis helps. It can be divided into two main approaches: fundamental analysis and technical analysis.
In technical analysis, traders identify opportunities by looking at statistical trends. These include price and volume movements. They also examine charts for patterns that indicate future trends. In fundamental analysis, traders evaluate a currency by its inherent value. They examine the economy, from industry to the finances of individual companies. There is no “best” practice for the two styles of analysis. Rather, traders often use a combination of the two to gain more insight into the market.
For this article, we will focus on fundamental analysis. Here are some useful Forex fundamental analysis tools available to any Forex trader.
1. Economic Indicators
Economic indicators are reports that show the economic performance of a country. They are provided by governments or private organizations and published at specific times. They are often a good indicator of whether the state of a country’s economy is improving or deteriorating.
Some important indicators to keep an eye on are Gross Domestic Product (GDP), unemployment rates, interest rates, and Non-Farm Payrolls (NFP). These indicators can usually be found on each country’s official government website. Below is an example of the U.S. Gross Domestic Product (GDP) for the first quarter of 2022.
2. Economic Calendar
The economic calendar contains the dates of important publications or events. These may affect the development of the prices of individual securities or the markets as a whole. These include economic indicators such as gross domestic product (GDP) and the consumer price index (CPI). Attention should also be paid to the number of applications for unemployment benefits, reports on the start of construction of new houses or reports from central banks.
Overall, traders rely on the economic calendar for information that provides them with trading opportunities. They use it to plan trades and rebalance their portfolios. They also pay attention to chart patterns that could be caused or influenced by these publications or events.
Many of these calendars are available for free on financial and economic related websites. Below is an example of the economic calendar on the Forex4you website. It is one of the most accurate and up-to-date economic calendars on the Forex market.
3. Forex News Portals
Another important tool of fundamental analysis is news about the world economy. This is because economic news has a tremendous impact on many short-term movements in the market. And the best part? They are available through TV, radio, online news portals and podcasts. The problem is that it can be tedious to keep track of so many different sources.
Ideally, business news should be made available within your trading platform. This is something that Forex4you offers. Traders using Forex4you also have access to direct market commentary from Trading Central, one of the leading investment research providers for technical strategies. It is also a registered investment advisor (RIA) with the U.S. Securities and Exchange Commission (SEC).
4. Propriety Fundamental Analysis Tools & Solutions
Many companies have solutions for rating the potential impact of economic indicators. Some even evaluate the impact of news on a particular trade pair. However, one drawback is that these solutions often come with a cost in the form of subscription fees. Moreover, although they are convenient, they are not always accurate. You should not rely exclusively on these solutions for your trades. As a Forex trader, you should focus on the economic calendar, reports, news portals and a solid trading strategy. These are reliable and proven methods that you can use to sharpen and improve your analytical skills as a trader.
In summary, fundamental analysis provides an effective approach to studying the foreign exchange market. But it also has its downsides. For example, fundamental analysis may show that a particular currency is undervalued. However, this is no guarantee that its shares will reach their intrinsic value in the foreseeable future. In reality, price behavior is influenced by many factors and unforeseen events that may affect the global economy. This would override any initial assumptions you made based on fundamental analysis.