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Fundamental analysis of the FOREX market can be based upon analysis of political and macroeconomic environment of the relevant countries, trend identification and its impact on the supply and demand for the given currency. In order to achieve this aim it is advisable to follow the main political, economical and social processes and macroeconomic indicators related to the state of the economy of relevant countries.
Macroeconomic data publication of is one of the most important events “fundamentalists” closely watch. Publicized by news agencies accordingly to specified calendar agenda, along with forecast for a given indicator. If the actual value is equal to the prior prognosis, there should be no reaction on the market. However, if there is a significant difference, the market is likely to respond nervously, according to the impact the publication has on the underlying economy, rewarding traders that correctly predicted the value of the indicator.
One of the characteristics of the FOREX market is its sharp reaction to macroeconomic data publications and thus discounting of future information. An investor has to decide - is the data predicted by him already discounted by the market or not. Publishing of commonly expected data will not have any major impact on the market, as it is almost certainly already discounted by the currency exchange rate. Information is interesting only when it is not known to the public.
One of the most important factors in fundamental analysis is the monetary policy carried out by central banks. Interest rates, open market operations and central banks interventions influence the situation on the market and are closely watched by financial analysts.
Statements by government officials, central bank presidents, or other officials related to international or monetary policy should also be followed closely. Stability of the political environment improves the economy, attracting foreign direct investments and demand for local currency, whereas an unstable political situation may result in a massive withdrawal of invested assets and an increase in foreign currencies prices.
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