Trading Using Fundamental Analysis

 

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Learn how to get your start Find out more about this valuable When major corporate transactions have a big impact on the currency markets, you can benefit. Because part of the fundamental analysis of Forex market is to trade expectations.

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The foreign exchange market – also called forex, FX, or currency market – trades currencies. It is considered to be the largest financial market in the world.

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Plug-ins Boost your platform with our complimentary plug-in tools. API For institutions, corporations and sophisticated traders. For example, if U. This in turn will weaken the U. And this move will be quite sharply immediately after the announcement. Keep your stop-losses in place, but not too tight, as there is always inevitable volatility after economic date announcements.

The drawback of this strategy is that you can only execute it on days of economic data announcements and there needs to be a surprise in the figures. However, on a day where that does happen, it can be very profitable. So, keep this strategy in mind. Big round numbers refer to figures such as 1. In fact, academic studies have shown that big round numbers have an effect in major currency pairs, so they can actually be used as a stand-alone trading tool.

When it comes to forex trading using chart analysis tools, such as technical indicators, it is absolutely vital not to solely stick to one indicator to make your trading decisions. When released, volatility rises. The economic news influences markets throughout the trading day and week, and even over the weekend.

Such events may be Chinese data typically comes out on Sundays or economic summits, etc. Even political and geopolitical events, like referendums and G20, etc. The typical structure of any Forex market calendar looks like the one above. From left to right, the data to consider is the:. This one shows what every piece of economic data means and why it is important as a Forex economic calendar indicator. The red color signals an economic event at Trade Balance is the name, and the forecasted value is CAD0.

It represents the difference in value between imported and exported goods during the reported month. Hence, the bigger the data, the better for the currency.

The frequency, historical data, the next release data and other details give the overall picture of the news. Such information exists for any news part of the fundamental analysis of Forex market. Not all data in the economic calendar matters, though. Traders focus on having an educated guess about what the central bank will do next. Central banks meet regularly every month or every six weeks to set the interest rate on currency. Together with the interest rate, the overall monetary policy moves the Forex market.

Trading is a game of probabilities. And in most of the times the market moves based on future expectations rather than the actual news.

Between two central bank meetings, traders buy or sell currencies on future monetary policy expectations. Anything else is secondary.

The red economic events are the ones that move the market. The rest of the data is secondary in importance. Above is the important fundamental analysis of Forex market. Traders focus on the red events and on what they tell about future monetary policy.

What a central bank does with the interest rate on a respective currency is vital for that currency. All of them have a mandate and set the monetary policy based on it. The pillar of their mandate is inflation. A classical mandate sounds like this: However, there is one central bank that has a dual mandate: The Federal Reserve of the United States. It is no wonder now why the jobs data in the United States, namely the NFP number is crucial for the dollar.

Knowing what data follows is a great advantage ahead of the market. The problem is that everyone looks at the same data. Yet, not everyone makes money in the Forex market. One way to succeed is to use the FX trading calendar correctly. Keep in mind that fundamental analysis in Forex trading is as important as technical analysis. Everyone knows these days that the ECB has a problem with inflation in the Eurozone.

More exactly, with the lack of it. In this relation, levels of 1. Higher inflation levels lead to the central bank raising rates. Contrary, lower inflation results in the central bank cutting rates. Higher rates mean a higher currency, while lower rates are bearish for a currency. It is clear now why inflation is so important for the central banks.