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Fundamental analysis

Fundamental analysis is a financial market technique that claims the ability to forecast the future direction of prices through analyzing economic indicators, government policy and societal factors. FOREX market is controlled by supply and demand. Economic factors, government policy and societal factors can affect the supply and demand for a currency. The basic idea is that increases in supply tend to depress the currency value, while increases in demand tend to increase the currency value.

Economic indicators are released by government and academic sources, usually on a monthly or weekly basis, sometimes quarterly. The most important economic indicators are: interest rates, international trade (trade ballance), Consumer Price Index or CPI, durable goods orders, Producer Price Index or PPI, Purchasing Managers Index or PMI and retail orders.

Every important economic indicator is published in economic calendars. There are many free economic calendars on the internet. I recomand you the www.forexfactory.com and the economic calendar on www.forexpeacarmy.com. The economic calendar on www.forexfactory.com is updated in realtime on news releases, you can find a description about every economic indicator, and its usuall effect on the market. In the economic calendar on the www.forexpeacarmy.com you can find the historical effect of almost every economic indicator.

On the next picture you can see the www.forexfactory.com economic calendar. In the first column you can see the date, in the second column the exact time of the news release (you need to adjust the time to your time zone). The third column will show you the currency affected by the news, the forth the expected impact on the market, the sixth the name of the indicator. Clicking the icon in the seventh column you can find some detailed information about the indicator. In the eighth column you can see the actual value, in the nineth the forecasted value and in the last column the value of the previous release.

Economic calendar

Forex Factory economic calendar legendIn the picture on the left, you can see the legend of the www.forexfactory.com economic calendar. I recommend you to focus on the high- and medium impact economic indicators. Refresh the page before every news relase and click on the "actual pending" icon several time in the minute of the release to get the actual value as fast as possible. Always focus on the difference between the actual and the forecasted value.

The highest the difference (no matter whether positive or negative) between the two numbers, the highest the possible impact on the market. One of the reasons why this happens is that the forecasted value is already priced in by the market, and if the forecast was wrong, there must be a correction. The other possible reason is, that day by day, more and more people are focusing on economic indicators and are buying the currency if the actual value is better than expected, and selling the currency if the actual value of the economic indicator is worse than forecasted.

On this site you can read about these news trading methods, ways to trade using these economic indicators.

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Please note!
Trading foreign exchange (FOREX) on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should not invest money that you cannot afford to lose.