Forex trading fundamentals
What are Forex Trading Fundamentals?
What exactly are Forex Trading Fundamentals?
Important financial or economic news is thrown at us every day.
Fundamental announcements are a very important factor when trading at the Forex market.
Basically when trading at any market. Fundamentals could cause a movement in the market in a shorter timeframe. Take the Brexit for example.
We focus on one economy versus the other economy.
For example Europe against the USA or Great Britain Against Japan etc.
Let’s take a look at the most important indicators that will have a great impact on the market or certain pairs.
An increased interest rate of a certain country will result in a growth of the value of the currency of that country since investments will rise due to a higher interest rate.
A lower interest rate will result in a weaker currency since there will be fewer investments due to the lower rate of return.
This production data is a strong indicator for the industrialized countries.
It is Bullish if the numbers are higher than expected and Bearish if the numbers are lower than expected.
Higher employment numbers will be Bullish for a currency. And lower employment will naturally Bearish.
Higher inflation and higher consumer confidence is a positive economic signal and therefore has a Bullish impact on the currency.
And weaker inflation and lower consumer confidence is a Bearish signal for a currency.
GDP (Gross domestic product) is more of a lagging indicator, but obviously a higher GDP encourages Bullish price. And the lower the GDP, the more Bearish.
This is also how a good Forex trader starts the day. First, you look at the economic news and how it can have any effect on the pairs you want to trade.
- Keep an economic calendar on hand that lists the indicators and when they are due to be released. Also, keep an eye on the future; often markets will move in anticipation of a certain indicator or report due to be released at a later time.
- Be informed about the economic indicators that are capturing most of the market’s attention at any given time. Such indicators are catalysts for the largest price and volume movements. For example, when the U.S. dollar is weak, inflation is often one of the most-watched indicators.
- Know the market expectations for the data, and then pay attention to whether the expectations are met. That is far more important than the data itself. Occasionally, there is a drastic difference between the expectations and actual results. If so, be aware of the possible justifications for this difference.
- Don’t react too quickly to the news. Often numbers are released and then revised, and things can change quickly. Pay attention to these revisions, as they may be a useful tool for seeing the trends and reacting more accurately to future reports.