Fundamental Analysis in Forex

Fundamental Analysis in Forex

The currency of a country does not become weak or strong without reason. A large proportion of the value of a currency is based on the confidence of the economic strength of the country of origin of the currency. The economic strength is judged by certain indicators that are followed very closely when we are trading in Forex. When these indicators change, the value of the currency may fluctuate. When the economic health of a country is in good condition, this means that its currency is strong, or quoted against other currencies.

The fundamental analysis in Forex has become an important point because economic indicators have definitely become factors that move the market. When we focus on the impact that the economic numbers of a country have on the action of prices in Forex, there are 5 indicators that are observed more than the others, due to their impact on the market. These economic indicators are:

1. Non Farm Payrolls: Jobs created or lost in the US in the last month


2. Interest Rate Decision: The decision to raise, lower or maintain interest rates


3. Trade balance: Trade balance


4. CPI - Inflation: Price of the basic shopping basket and Inflation and


5. Retail Sales: Retail Sales

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Apart from knowing the date of the announcement of the indicators, it is of vital importance to know what are the predictions of the economists with respect to the indicators. For example, knowing that a good number of new jobs generated in the US for a month is 250,000 is not as important as knowing what the economists' prediction about the outcome was.

Many times the predictions are wrong, and in those cases there is a sudden change in the market. If economists believed that there would be 250,000 new jobs generated in the month of January, but only 100,000 were created, this will cause the US economy to weaken and therefore its currency (the dollar), with respect to the others .

These indicators give opportunities to make good trades in the Forex market, because prices often trigger several points towards one or another place depending on whether the number offered by the indicator matches or not with the expectations of economists, and this Usually occurs within the first 30 minutes after the advertisement has been broadcast.

To help you understand upcoming important economic events, when they will take place and the expectations of economists, we recommend that you always have our Economic Calendar at hand.

Below we will talk about each of the most important news in order of relevance for fundamental Forex analysis.

1. Non farm payrolls - Unemployment rate

The unemployment rate measures the strength of the labor market. One of the ways analysts measure the strength of an economy is by the number of jobs created and the percentage of workers unable to get a job. Many jobs created in a month are indicative of economic growth, as companies must increase their workforce to meet the demands.

This economic indicator shows an average pips movement of 124 during the first 20 minutes after its announcement.

2. Interest Rate Decision

In the case of the United States for example, the Federal Open Market (FOM) decides the discount percentage, which is the percentage with which the Federal Reserve Bank charges its member banks for the loans. The percentage is decided during the meetings of the FOM with the regional banks and the Board of the Federal Reserve.

This indicator shows a mean pips movement of 74 during the first 20 minutes after your announcement.

3. Trade Balance

The trade balance measures the difference between the value of the goods and services a nation exports and the value of the goods and services it imports. A good trade balance is indicative that the value of what is exported is greater than the value that is imported and a deficit trade balance is one in which imports are greater than exports.

This indicator shows an average pips movement of 63 during the first 20 minutes after your announcement.

4. CPI - Inflation

The CPI is key to inflation as it measures the price of a basic shopping basket of consumer goods. High prices are considered negative for the economy, but as the Central Bank generally responds to inflation by raising interest rates, currencies sometimes respond positively to an increase in inflation.

This indicator shows a mean pips movement of 44 for the first 20 minutes after your announcement.

5. Retail Sails

Retail sales show the economic moment of a country based on its commercial activity. This indicator shows an average pips movement of 43 during the first 20 minutes after your announcement.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.