Fundamental Analysis in Forex


A country’s currency does not become weak or strong for no reason. A large proportion of the value of a currency is based on the confidence of the economic strength of the country of origin. Economic strength is judged by certain indicators that are closely followed when we are trading Forex. When these indicators change, the value of the currency can fluctuate. When the economic health of a country is in good condition, this means that its currency is strong, or well priced against other currencies.

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 price action 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 USA in the last month
  2. Interest Rate Decision: The decision to raise, lower or hold interest rates
  3. Trade balance: Trade balance
  4. CPI – Inflation: Price of the basic shopping basket and Inflation and
  5. Retail Sales: Retail Sales

Apart from knowing the date of the announcement of the indicators, it is vitally important to know what the predictions of the economists regarding the indicators are. For example, knowing that a good number of new jobs generated in the USA for a month is 250,000, is not as important as knowing what the economists predicted regarding the result.

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 created in the month of January, but only 100,000 were created, this will cause the United States economy to weaken and therefore its currency (the dollar), compared to the rest .

These indicators give opportunities to make good operations in the Forex market, because prices often shoot up several points towards one place or another depending on whether or not the number offered by the indicator coincides with the expectations of economists, and this it usually occurs in the first 30 minutes after the ad has been aired.

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

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

Non farm payrolls – Unemployment rate

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

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

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 loans. The percentage is decided during the FOM meetings with the regional banks and the Board of the Federal Reserve.

This callsign shows an average pip movement of 74 during the first 20 minutes after your announcement.

Trade Balance

The trade balance measures the difference between the value of the goods and services that 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 callsign shows an average pip movement of 63 during the first 20 minutes after your announcement.

CPI – Inflation

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

This callsign shows an average pip movement of 44 during the first 20 minutes after your announcement.

Retail Sails

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

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