More About Fundamental Analysis in Forex

It's now what you've got, but how you use. So it goes that the make or break of any forex trading transaction actually does not lie on how much money you put in trading, but on trading strategies that rely purely on analysis.

There are two types of analysis in forex: the technical analysis and the fundamental analysis.

The long and short of technical analysis is that it is based on past trends in the forex market. You will know if it is a technical analysis you are making if you are looking at charts and graphs. Fundamental analysis, on the other hand, employs a little more of "being in the moment."

Fundamental analysis in forex covers the spectrum of all economic and political climates that may affect the prices of currencies. Forex traders typically rely on the news to get information on inflation, growth rates, unemployment rates, and economic policies.

While technical analysis gets into actual and historic movements in the forex market, fundamental analysis, on the other hand, takes an overview of forex movements. Fundamental analysis paints for the forex traders a broad picture of the conditions affecting the price of a currency. In order to get the best analysis, forex traders have to supplement their findings in the fundamental analysis with that of the technical analysis.

Forex currency prices are essentially affected by forces that affect supply and demand. These forces of supply and demand, in turn, are affected by conditions in a country's economy. Two of the most important economic factors that affect supply and demand are an economy's strength, and interest rates.

Economic indicators can also affect supply and demand. Governments and the academe are the sources of these economic indicators, and they are followed by all segments of the investment industry. The two most important of these economic indicators are INTERNATIONAL TRADE and INTEREST RATES. There are other economic indicators like the Consumer Price Index or CPI.

Interest rates can either weaken or strengthen a country's position in forex trading. High interest rates typically attract foreign investment, which strengthens the local currency. But it will also adversely affect the stock market because stock investors typically react by selling their stocks, believing that higher interest rates will put companies at an adverse position.

A forex investor must always follow the factors affecting fundamental analysis to get a feel of where his currency is going, whether on a downward weak turn or an upward strength.