Fundamental analysis in Forex Trading

 The movement in the Forex market is set by fundamental factors. These are the key macroeconomic indicators of the state of the national economy that affect the participants in the Forex market and the level of exchange rates. These are the factors that fundamental analysis studies.

Information about the discount rates of central banks, the economic course of the government, possible changes in the political life of the country, as well as all kinds of rumors and expectations are the most important in fundamental analysis.


If you, opening a trading platform, want to see the whole market picture as a whole, you need to add fundamental analysis tools to your arsenal. It is based not only on monitoring the schedule, but also on tracking global economic and political events.

A key referendum, a presidential commentary, or the publication of negative statistics on the country can drastically affect the exchange rate of the national currency.

Economic, political, and even seasonal factors are inextricably linked to trading, and their regular study and use to determine future price values ​​is called fundamental analysis.

The purpose of fundamental analysis

Each trader needs to figure out exactly how economic events and indicators affect quotes, and how to build their own forecasts using this data.

It can often be seen that traders, even experienced ones, believe that since they are scalping, opening dozens of fast trades during the day, they do not need to know anything about the global situation. And you don't have to open the Economic Calendar.

However, this is fundamentally wrong: any changes that you did not have time (or did not want) to pay attention to can negatively affect even short-term trading. The purpose of fundamental analysis is to help the trader prepare for unexpected price changes by understanding the reason why it is happening. And it is, as a rule, external.

What events are taken into account when conducting fundamental analysis?

§  economic, geopolitical and social phenomena;

§  economic prospects and general market sentiment in relation to a particular country;

§  natural disasters (extreme weather conditions, earthquakes and hurricanes that cause serious damage);

§  wars and periods of conflicts between countries;

§  political events (presidential elections, referendums, forums);

§  publishing important statistics (economic indicators) by industry or country.

Fundamentals of fundamental analysis

Trading is a game of expectations and global relationships. It is this law that lies in the practical foundations of fundamental analysis.

Let's give an example of such a chain of dominoes. Oil prices affect the inflation rate in the region. Inflation changes - traders immediately start waiting for the central bank to change the level of interest rates.

When Brent fell from $ 100 to $ 30 a few years ago, it shocked financial markets. Although with a lag of a couple of months, inflation eased significantly across the world, and key central banks have noticeably changed their course of policy within a few weeks: from willingness to raise rates, to pause in rate hikes or new programs to support markets.

All this was done so that the economies of the largest countries would not be swept by deflation (a steady decline in prices for goods and services), which subsequently runs the risk of triggering an economic depression.

Why is deflation bad? Excessive cheapening of goods leads to a financial deficit, lack of the necessary amount of funds in the economy and holes in the national budget. It turns out that the country begins to lack money not only for development, but also to cover vital costs.

Fundamental Analysis Subject


All actions in the financial market have an economic cause and effect. Fundamental analysis studies the relationship and influence of macroeconomic, geopolitical, and regional factors, as well as any legal and monetary actions on the rate of a financial asset (currency, raw materials, stocks, liabilities).


Also, the scope of fundamental analysis includes the assessment of statistical data, the political situation, the state of all types of resources, analysis of the likelihood of various kinds of force majeure situations and forecasts of further development. The most important thing is that it is the foundation that most correctly allows assessing the alignment of large market players' forces and allows a small player to safely "swim alongside sharks".


The foundation "sees in the market" already today what any chart will show only tomorrow? then technical analysis can work with the price to make the calculations required to open positions. If you correctly (and on time!) Analyze the fundamental events occurring today "behind the chart", then tomorrow the result of your technical analysis will be much more reliable.

Fundamental Analysis Objectives


The standard task is to make an optimal forecast of price movement and make a profit , and this requires an effective search and analysis of factors that may affect this. The result of fundamental analysis: determining the future fair price of a trading asset (or group) and developing a methodology for achieving it.

It is the market balance of supply / demand that directly affects the price of an asset: if (from the point of view of the foundation) the current price deviates from the "fair" market price - higher or lower, then the asset is considered, respectively, overbought or oversold and must move towards reaching the balance level calculated level.

We remind you that this is how large players move the price , creating a market imbalance with their huge volumes (mainly pending positions), after which a lot of small players move in a certain direction. Show us the intentions of market makers in time is the main goal of fundamental analysis.

Impact of fundamental analysis on the market


We think globally: it is a comprehensive assessment of indicators that is important to us. No single information should be the only signal for making a trading decision.

Note that the fundamental analysis will be correct only if the country operates in a market economy, that is, government regulation and pressure on the economy is minimal. The opposite example: the economy of modern China, in which all external and internal factors, including official statistics, are strictly controlled by the government, practically defies standard analysis. At the same time, China's influence on the Asian region is enormous, but it cannot be predicted; it makes sense to evaluate only the actual data.

 It is believed that the fundamental factors have on the market:


  • Long-term impact: affects the global or national economy over a period of several months to several years. As a rule, these are structural, monetary, industrial factors, such as the dynamics of inflation, unemployment and interest rates, the state of raw materials, as well as long-term statistics (quarter, year). This forecast is used to open and maintain strategic positions.


  • Short-term impact: limited to a period from several minutes to several days (political news, short - term Forex statistics , negative comments, etc.). The result of the analysis is used to open and hold trades from М15 to 24 hours.

The world market is especially sensitive to the situation with the USD: for example, if the volume of US exports grows, then there is an active demand for the dollar in importing countries, which strengthens the dollar in relation to other assets in the foreign exchange market. However, any uncertainty - political, financial, natural or man-made disasters, executives and business people's comments lead investors to immediately get rid of the "problem" dollar and go to less risky assets. The result is that the dollar is falling. In the screenshot below - the US Federal Reserve's official website - here is all the relevant information on the dollar.

The structure of fundamental analysis

The process should move from the global level to the finer, from complex data to simpler ones.


The following structural levels are distinguished for carrying out FA:

1.     National: a comprehensive political and economic analysis of the country's state, financial, raw materials and industrial resources.

2.     Sectoral: features of the formation of supply/demand, prices, technologies and production parameters.

3.     Level of global companies (product, index, security): assessment of business strategies and competitive environment, analysis of financial statements, management systems.

Any fundamental analysis is relative. You can create a convenient scheme yourself, but we can offer a classic version:

  • Global (long-term) analysis of markets (of various types), the likelihood of a crisis or force majeure, political and economic "background" in leading countries.

  • Medium-term (regional, sectoral) analysis of economic indicators and the level of stability of the country (region, industry) with which a particular asset is associated.

  • The pressure of global and regional factors on the medium and short-term dynamics of the selected asset.


Fundamental analysis methods


Standard statistical techniques are commonly used:


Comparison method

In the mass of macroeconomic indicators, the most significant (for example, GDP, industrial production, unemployment, interest rate) are determined that seriously affect the market dynamics, and then these values ​​are compared according to various criteria: regions, countries, assets, periods. Further, their dynamics is projected onto the exchange rate, raw materials, energy prices in order to fulfill the forecast of indicators. For example a comprehensive assessment of the impact of statistics from leading EU countries on the EUR exchange rate.


Induction / deduction method

Recall that induction is a strategy of averaging and reducing to a single indicator of many different factors for the overall result. In the financial market, it is used to assess the chances of a trend line continuation. For example "Beige Book" or quarterly reports of companies.

The deduction is an assessment of the causal relationship of historical data, that is, the search for factors that the market has yet to work out. Used to assess the chances of a trend reversal. For example the influence of a commodity asset on the dynamics of a currency pair.


Correlation method

Forecast of the dynamics of a group of assets based on the analysis of mutual relationships (direct or reverse). The correlation can be calculated independently, but we recommend using special services on information sites, where the calculation is performed automatically in real-time. For example the correlation of the Canadian dollar with oil or the Australian dollar with spot gold.

Grouping and generalization method

Diversified assets (currency, raw materials) are compiled, for which index indicators are calculated. The dynamics of the index is considered a priority for all assets in this information block. For example, the famous S & P500, below on the screen - the dynamics of its components.

Seasonality method

The impact of regular natural factors, seasonal economic indicators (for example, weather conditions, seasonal employment, increase or decrease in energy demand, increase in consumer spending on holidays), regular currency exchange for tax payments during financial reporting periods, and seasonal reporting of commodity companies are studied. And the manufacturing sector.

Force majeure in fundamental analysis


Any unexpected disasters in nature and society actively affect the economy, and the financial market is one of the first to react. You should not miss such opportunities for making money: a trader needs to assess this reaction in time and determine the safest and, if possible, profitable trading strategy for himself. Today, the most powerful force majeure events are:


Military conflicts

The main thing is to identify the parties to the conflict correctly: for the aggressor country, as a rule, this situation is more beneficial and has a positive effect on the currency. Also, against the backdrop of conflicts, active speculation in raw materials and energy resources begins.


Natural disasters, human-made disasters

They negatively affect the exchange rate of the affected country's national currency (region), speculatively rise in prices for industrial raw materials and energy resources, which gives an excellent reason for fast trading. Even if the data on the scale of losses (destruction, the number of victims) are exaggerated, or the problem is removed due to central banks' interventions, such a trend will quickly unfold, and speculators who reacted in time can again earn money.


Political instability

Elections, coups, technical defaults, resignations of senior officials - even a hint of such problems negatively affect the national currency and major stocks, as well as goods and resources supplied by the conflict country. Even the consequences of a completely expected event, such as Brexit, cannot be calculated by the market using technical analysis methods and does not have time to develop a general reaction.

If you are planning to trade in a situation of force majeure, make sure that all your market trading orders are correctly executed by your broker (without slippage, "loss" of quotes, low liquidity, incorrect prices) and, if necessary, you can quickly fix a speculative deal.


Main data sources

So, for a complete fundamental picture, we need:

  • official statistics and economic data;
  • public information (including unofficial) of state and financial authorities, national banks;
  • information from news and analytical agencies;
  • analytical publications of leading economic publications;
  • speeches and comments of officials, heads of financial departments, analysts, politicians, representatives of big business;
  • sectoral reporting and forecasts for the development of the most important sectors of the economy;
  • corporate reporting and analytical data of large companies;
  • any information (financial or political) that can be used as an insider.


In traders' slang, such information is usually called "news" - its main volume is indeed regulated in time, but a significant part of the data, especially analytics, will have to be searched for independently.

News indicator

A common technical trading tool, fundamental and technical analysis in the financial market, allows you to set up filters, but it gives only data without analysis, comments, and recommendations. It is usually offered either as an informer in a trading terminal or as a special service on analytical sites. It processes data from multiple servers, so the efficiency of such information is questionable.

Information on the broker's website

It is used by those who do not plan to study the intricacies of fundamental analysis and is offered, as a rule, already with an assessment of the situation and recommendations. Naturally - it is late. Therefore it is suitable only for general analysis and not for making a trading decision.

Financial news and analytics

Data from leading news agencies of the world, such as Bloomberg, Reuters, MarketWatch, Wall Street Journal, New York Times, CNN News, BBC News, Finviz , and we strongly recommend using the original data. Serious information is usually paid or shareware, but such costs quickly pay off. Moreover, it is paid information that is much more reliable and useful.

Economic calendar

The most popular form of submission of regulated information: they contain a list of statistical data (indicating the official source), a filter system, a publication schedule with previous values ​​and an official forecast. The calendar conducts information processing and the initial assessment of their impact on the market in real time.

We remind you that any news source (free or commercial) that you plan to use as a provider of information must ensure that the data is prompt and accurate in a format convenient for you.

Rumors in fundamental analysis

Market "rumors" in the financial market are considered to be some unofficial, most often unverified, information that can cause a speculative reaction and a shift in current price levels. This is the traditional method of manipulation to create a trading buzz that makes the big players profit and the small ones go broke. At such moments, the price moves against any logic and can break even long-term trends, but most often, having collected easy money from “amateurs”, market makers return the price to a convenient technical range.

We check any information many times and be sure to hedge the positions opened on "rumors" so that when the actual information appears, you can exit the deal with minimal losses.


When is fundamental analysis ineffective?

You need to understand that not every event can cause a strong price movement, and any information needs to be assessed comprehensively. For example:

  • The "news" was not strong enough for the current trend to react.
  • Several events occur simultaneously, the influence of which is mutually compensated. For example, the release of weakly positive European indicators will have a much smaller impact on the EUR / USD pair than the data on the decline in US inflation.
  • There are other fundamental factors on the market that you did not consider - not all information is available to you. Not all of you have time to process—for example, purchases of dollar stock by large corporations for their local purposes.
  • You are using false or deliberately false data - absolutely independent sources of information do not exist.
  • You misinterpreted the available data and made an incorrect forecast.

It is advisable to confirm signals of fundamental news by technical analysis. Therefore, for a reliable entry into the market on speculative news, Stop Loss must be set. With a successful entry, we follow the development of the situation using traditional indicators.




Many different factors simultaneously act on the current price, and the same events (or data) in different conditions will cause different reactions - and this is the main problem of using the foundation in real trading. The ability to analyze Intermarket relationships that can effect changes in the price rate, the ability to “read between the lines” of any information requires a lot of effort and comes only with experience.


Any technical analysis processes only past data, and the future of the market is shaped by economics and politics. Even with a proven technical strategy, you cannot ignore the fundamental analysis process - it is dangerous for your deposit. Otherwise, this market will quietly ignore you.


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