Fundamental Analysis for Beginners

The ebb and flow of the currency markets are driven by changes to the economic environment in each of the two countries that make up a currency pair.  When an economy shows more potential for growth and inflation, traders are more likely to believe that interest rates in that currency will climb.  However, if growth prospects or inflation backdrop decline, traders will begin to believe that interest rates might fall.  Interest rates are the driving force behind currency movements, which means that evaluating economic data is important. The process of determining if economic data will affect the currency markets is called fundamental analysis.


What is fundamental analysis?

The objective of a fundamental analyst is to stay in front of the curve and attempt to predict what might take place within the markets based on economic or political announcements.  One way a trader can determine the direction of the market prior to the event taking place is to use a financial calendar.

Economic Calendar

By using a calendar, you can track key indicators which will allow you to get a better understanding where the market is heading and what invariable impact your currency movements.   An example of the use of a financial calendar associated to an economic event would be to find out when the United States Federal Reserve Bank plans to meet to determine their next move on interest rates.  Traders can forecast whether the rate will be raised or lowered through the knowledge of this meeting taking place.  An experience and sophisticated trader will take specific poof political news can impact markets are government elections.  It is imperative that a trader keep a close eye on political events though their calendar to time their trades accordingly.   Political instability leading up to an election can also play a major role on the direction of currencies.  For example, when Donald Trump unexpected defeated Hillary Clinton for the President of the United States, the dollar moved higher in value against most major currencies.

There are several ways to use a financial calendar and several different options.  The trader can search for indicators online and create their own calendar by inserting the indicators in manually.   In addition, there are numerous online calendar platforms which are presently provided by brokers that update indicators automatically and will give you the necessary information to make informed decisions.

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