What is Fundamental Analysis?

The foreign exchange (Forex) market, renowned for its high liquidity and rapid fluctuations, demands accurate trend predictions for effective decision-making. Forex analysis, an indispensable tool for traders, broadly falls into two categories: Fundamental Analysis and Technical Analysis.

What is Fundamental Analysis?

Fundamental Analysis involves predicting currency value fluctuations and determining exchange rate trends by studying macroeconomic indicators, political events, fiscal policies, and other factors. It is based on evaluating the overall economic health, as these factors are believed to be reflected in currency value.

Elements of Fundamental Analysis

Economic Indicators: Core indicators such as GDP, inflation rates, and employment data are crucial for fundamental analysis, reflecting a country's economic health. Good economic conditions will support the currency exchange rate, while depressed economic conditions will devalue the currency.

Political Factors: Political stability, election results, leadership changes, etc., can influence currency value. Political uncertainty may lead to market volatility. The more steady a country's political system and social structure, the more stable its currency will be in the marketplace. In addition, wars or geopolitical conflicts can have an impact on the value of currencies.

Monetary Policy: Decisions of central banks, especially changes in interest rates, directly impact currency value. Investors should closely monitor central bank statements and policy directions. Rising interest rates will drive up investor demand for currency holdings, which in turn will push up the currency exchange rate, and vice versa, which will pull down the value of the currency. In addition, the stability of the Government's fiscal position will also affect the stability of financial markets.

Advantages of Fundamental Analysis

Fundamental analysis is more suitable for long-term investors as it focuses on changes in economic fundamentals, which usually take time to manifest.Fundamental analysis covers global events, including trade relations, wars, and natural disasters, providing investors with a comprehensive understanding of the market environment.

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