Fundamental analysis is the process of market analysis which is done regarding only “real” events and macroeconomic data which is related to the traded currencies. Fundamental analysis is used not only in Forex but can be a part of any financial planning or forecasting. Concepts that are part of Forex fundamental analysis: overnight interest rates, central banks meetings and decisions, any macroeconomic news, global industrial, economical, political and weather news. Fundamental analysis is the most natural way of making Forex market forecasts. In theory, it alone should work perfectly, but in practice it is often used in pair with technical analysis.
In practice, traders use fundamental analysis in conjunction with technical analysis to determine a Forex trading strategy, fundamental analysis is considered to be the opposite of technical analysis.
Economic Calendar
Economic calendar is created by economist.This calendar contains different informations in this format: visit www.forexfactory.com for daily economic news
Date Time Currency Impact Detail Actual Forcast Previous
How to read Forex Economic Calendar
Impact factor — suggests how much influence current economic data is expected to bring along.
Red means High Impact
Orange means Medium impact
Yellow means Low impact
It is important to know the time of High impact data release if you trade affected currency pair.
During actual news release market becomes volatile. The strength of the volatility depends on the “factor of surprise” brought in the news.
“Factor of surprise” can be defined as a level of unexpectedness, where traders compare Forecast data to Actually released data.
Medium impact economic data should also be kept in mind in case the factor of surprise turns to be high. Low impact data most of the time do not shift Forex market significantly.
Column Previous in Forex Calendar — provides data from last release.
Column Forecast indicates numbers that economists are predicting and expecting for the upcoming release today.
Column Actual is updated only after the data is out. At the very second when data becomes available it is instantly compared against Forecast values, and depending on overall positiveness or negativeness of the news for the currency plus taking into consideration the factor of surprise, price dips or rises in a matter of seconds.
If the Actual is green in color, it means that the actual is better than the forcast. If it is red, then it means that actual is worse than forcast.
Economic News impact — increased market volatility — usually lasts for 1-3 minutes (highest volatility); next 5-10 minutes market experiences corrective/adaptive volatility, where price settles in summarizing new market shift.
How to trade with fundamental analysis:
If you are trading with fundamental analysis, it is expected that you often trade a weak currency against a strong currency. for instance if you are trading EURUSD and if prior to a high impact economic data release for both currency one of the pair say EUR is weak and USD strong, then a worse high impact actual data release for EUR or a better high impact actual data release for USD will result the selling off EUR and buying USD. In other in this scenario you will sell
