March 20, 2018

Question:What is Fundamental Analysis about? Why is it important for investment?


There are two basic types of market analysis.

  1. Fundamental analysis – this type of analysis tries to predict future market movements according to a country’s economic news.
  2. Technical Analysis – This method analyses current market movements, in comparison to past market movements in other words, it tries to predicts future trends, using past movements, with help of indicators provided by your trading platform.

Fundamental analysis

Fundamental analysis evaluates the economic position of countries and the ways in which economic news affects the value of the current use and equities, or the value of the goods exported by those countries.

The economic news published by countries’ economists has a great deal of influence over market movements.

Since the USA is the largest economy in the world, it’s very important to follow it.

What is Fundamental Analysis about

Fundamental analysis is based on macroeconomic data that is provided for that country or currency for each country or economic block.

*i.e. Eurozone releases a number of particularly significant and important statistics every month.

This announcement often have an effect on the currency’s strength the following are a number of particularly important types of news announcements which have a particularly strong influence and usually cause very strong fluctuations in currency markets.

  • Gross Domestic Product
  • Retail sales
  • Employment and unemployment rates
  • Interest rate decisions
  • Minutes from the most recent interest rate meetings
  • Speeches made by influential figures in the market
  • Ifo business climate surveys
  • PMI (purchasing managers index)
  • CPI (consumer price index)
  • ZEW sentiment index (relevant only in Europe)

Market announcements are indicators of economy’s performance

Experienced Traders know how to incorporate these announcements into their strategy

It’s important to note that before an announcement is made public, forecast that announcement made by experts.

In many cases, the value of the underlined asset, reflex the forecast, and the actual announcement differs from the forecast, market can become much more volatile and interesting.

Example of Fundamental Trend

The following is an example which illustrates the effect such an announcements have on the market.

On April 27th 2011. an announcement was made regarding a decision taken for the interest rate in USA.

The forecast predicted a reduction of 0.25%, but in reality, the interest rate remained the same. This resulted in support for the US dollar as can be seen with the assets rise in value.

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