Forex Fundamental Analysis Article

Basics of  Forex fundamentals

That forex analysis is a basic part of any trading method is accepted and understood by everyone. The usefulness of technical analysis for the determination of entry and exit points is also recognized by most traders. It is a pity that the other branch of forex analysis, the fundamental study of currency markets, is neglected by a significant number of beginners, and even by some experienced traders. This is an unfortunate situation. Since the invention of coinage by the Kingdom of Lydia in Anatolia, speculation has been a part of economic activity. And since those earliest days of trading, a vast number of successful traders have based their decisions on fundamental analysis, which is a fact recorded by documents thousands of years old, such as the Chinese Shi Ji.

Forex fundamental analysis is based on the notion that although market events are random in the short term, in the long-term the value of a currency pair will converge toward the theoretical value determined by economic fundamentals. In the short-term, markets move in an apparently random fashion. But examination of long-term forex trends shows the relationship between fundamentals and the markets clearly. It is, for instance, basic knowledge that interest rate differentials influence market action in an easily perceptible way. Unlike technical studies, fundamental analysis also helps us to establish the causes of market events. While technical analysis shows the how, where, and when of the markets, fundamental studies provide us the crucial “why” component necessary for linking those “where, when, how” aspects of the price action.

Fundamental analysis is certainly not news trading, nor is it a way of timing the markets. While it sometimes happens, it is rare that the dictates of forex fundamental analysis will be reflected in the market action immediately. But the later that the markets realign themselves with fundamentals, the severer the correction will be. The longer the irrationalities last, the stronger their elimination in the markets, and the greater the profits of the fundamental trader.

From the earliest days of the invention of currencies, fundamental analysis has brought countless riches to its followers. The speculators of antiquity, army contractors of the Roman era, Chinese merchants of the Warring States period, the Rotschild family in the 19th century, and the better known examples of our time like George Soros or W. Buffet have all utilized the powers of fundamental analysis to acquire wealth well beyond the imagination of those whose practice is limited to technical studies. Whether you wish to join them is up to you. But the tools of forex analysis are available to all who desire to use them, and you have only yourself to blame if you miss your opportunity.