Fundamental analysis is the type of forex analysis that involves the examination of the true(intrinsic) value of an asset. It involves the evaluation of a nation’s economic data.
Economic data for use in fundamental analysis is presented as economic indicators. Types of economic data are the gross domestic product, consumer price index, and interest rates. Other economic indicators are retail sales, unemployment rate, and housing stats.
Gross Domestic Product (GDP)
The GDP of a nation is a total sum the market value of all the services and goods produced in a country. It is a major economic indicator with a notable impact on currency value.
To learn more about GDP and currency strength, click here.
Consumer Price Index (CPI)
The consumer price index is a measure of the change in the price of a basket of consumer goods. The consumer price index is a method of assessing inflation. It is used in measuring the purchasing power of a nation’s currency which reflects its value.
To learn more about inflation and currency price click here.
Interest rates of a country have a direct impact on the value of a nation’s currency. It is the central bank that set interest rates along with the nation’s monetary policy. The higher the interest rate, the harder the currency. The lower the interest rate, the softer the currency.
To learn more about how central banks affect the forex market, click here.
Using Economic Indicators
Economic indicators are often released at specific intervals. They usually effect the most change immediately after their release. Therefore, it is important to keep track of these releases.
You can keep track of economic indicators using an economic calendar. Different economic indicators have a different impact on the price of currencies. And you can see this using a good economic calendar.
You can make use of our economic calendar here.
In conclusion, you conduct fundamental analysis to ascertain the true value of an asset. Then make decisions based on it. Therefore, if the true value of an asset is lower than its current value, then it will rise. In the same vein, if the current value of an asset is lower than its true value it will drop.
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