The Importance Of Fundamental Analysis In Forex

Fundamental analysis is one of two ways to analyze the forex markets. The other approach is the more widely popular technical analysis.

Both fundamental and technical analyses are important when you want to study the markets. However, traders mostly ignore the fundamentals when trading currencies and focus only on the technical analysis.

The general argument is that day traders who only trade within a small time frame need not concern themselves with fundamentals. This is because fundamentals are what tend to impact longer-term trends.

However, regardless of whether you are day trading or swing trading, it is important to pay attention to the fundamental developments in the markets as well. You can actually expect to see losses on your trades if you trade blindly and based solely on technical analysis.

In this article, we cover what fundamental analysis is and why traders should pay attention to it.

What is fundamental analysis?

Fundamental analysis is the approach that looks at the intrinsic value of the investment. While this is the definition that is broadly used in the stock markets, it applies to the forex markets.

Fundamental analysis is the study of looking at the economic developments that can affect the value of a currency.

By understanding fundamental analysis, you can understand whether the currency is over or undervalued.

The markets are always forward-looking. Therefore, the price you see on the chart already discounts the available news at that time. However, as and when economic releases come out, the markets adjust to the updated information.

So understanding the fundamentals is an important aspect if you want to avoid any unpleasant market moves.

Fundamental analysis in the forex markets requires analyzing various economic indicators.

The Role of Interest Rates

The markets move based on the expectations of interest rates which are set by central banks. The banks set the rates by assessing economic indicators.

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