FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
HFM information and reviews
FxPro information and reviews

The Basics of Fundamental Analysis for Forex Market

Fundamental analysis is a trading discipline traders and analysts commonly use to assess the intrinsic value of a financial instrument by examining the underlying assets, industrial conditions and the broader economy. This article provides the basics to fundamental analysis that will come in handy for aspiring traders. Fundamental analysis in forex refers to the examining of the economic and geopolitical factors of different currencies, with the purpose of price forecasting.  

Unlike technical analysts who purely focus on price action, fundamental analysts would examine data such as a nation’s gross domestic product, international trade balance, and unemployment rate, to form a holistic view of a currency.

Understanding Fundamental Analysis

Fundamental analysis is usually adopted by long-term traders who are willing to hold the positions for a longer time frame until the intrinsic value of an asset is fairly reflected on its market price. Patient traders who practise the discipline may find it rewarding when undervalued assets begin to outperform in a recovering market. The understanding of fundamental analysis follows a top-down approach; major geopolitical events would often impact sensitive economic data, which affects market sentiment.

Top-Down Approach For Fundamental Analysis

Top-Down Approach For Fundamental Analysis


Geopolitical events can take place on the back of changes to international relations and politics. Such events can drastically impact a nation’s currency value, and the impacts are usually long-term and could inflict a ripple effect on various sectors of an economy. The US-China trade conflict is one example of how such events can impact the market. China’s rapid ascension into the World Trade Organisation led to US running a trade deficit with China that amounted to US$345.6 billion in 2019. Both nations imposed tariffs on goods imported from each other, which had a severe financial impact on the US economy as the US had to pay higher import taxes to bring China goods into their country. 

Economic Data

Economic data measures and represents the wellbeing and financial health of a nation. Economic data is so valuable because it determines the value of a currency, which affects the value of a currency pair a trader might be interested in. Most economic data is also scheduled to be released once every month on an economic calendar. Here’s another example on how the Covid-era in 2020 impacted the US economy.

After the pandemic started in early 2020, many economies including the US went into lockdowns. This resulted in a rapid increase in unemployment to levels not seen since the Great Depression. With high unemployment rates, the cost of producing goods also increase due to the lack of manpower. The rise of inflation during the pandemic can be credited to increased prices of goods and services due lack of production capabilities.

In the example above, let us break down the economic data from the different sectors.

Here are some of the most significant economic data releases with great influence over the market sentiments:

These economic data are typically released monthly. For example, Non-Farm Payrolls (NFP) will be released on the first Friday each month.  

Using Fundamental Analysis: Market Sentiment

As we have learned about geopolitics and its impact on economic data, perhaps the more important question is “how do we use the data to trade Forex?”. In this case, market sentiment is a key factor to consider. Going back to the example of the US during the Covid-era, as the virus spread across the globe, economies were in full lockdown, and causalities from the infections increased exponentially. The overall sentiment in the financial markets was leaning towards fearful.

When the market is fearful, investors tend to flock to ‘safe havens’ such as the Japanese Yen, Swiss Franc, or even precious metals such as gold and silver. On the flipside, if the dominating sentiment in the markets is optimism, investors are not pressured to protect their assets in ‘safe havens’, but could instead, invest in the stock market and equities.

Using Fundamental Analysis: Stocks

While the principles of fundamental analysis are similar for both forex and stocks, there are some key differences between the two markets that require different approaches to analyse. The fundamental analysis conducted on stocks is a method of analysing a specific company’s financial and economic fundamentals to assess its intrinsic value and potential for growth. Some factors to consider when conducting fundamental analysis for stocks include a company’s earnings, revenues, future growth, return on equity, and profit margins.

Fundamental Analysis For Stocks Factors

Fundamental Analysis For Stocks Factors


In essence, fundamental analysis is a valuation approach based on the idea that each asset has a fair value which is often not reflected accurately on its market price due to the influence of external or broader economic factors. It could be used to determine whether the price of an asset is over- or undervalued and discover long-term trading opportunities as an outcome.


Share: Tweet this or Share on Facebook


What Is The Best Way To Invest Money When You Don't Have A Lot?
What Is The Best Way To Invest Money When You Don't Have A Lot?

As we know, trading is impossible without starting capital as with 0 on the trading account, your profit will equal zero too. So, what can be done if a trader doesn’t have a sufficient amount to start investing...

Common Emotions that affect trading psychology
Common Emotions that affect trading psychology

A trader’s psychology can have a significant impact on their trading success. This is because psychology is driven by one’s emotions and behaviours, all of which drive trading decisions, good or bad...

How patience impacts your trading psychology
How patience impacts your trading psychology

Trading psychology plays a major role in determining trading success. It refers to the emotions, behaviours, and various other aspects of a trader’s character that may impact their trading decisions...

Understanding the Impact of the Best US Dollar Rate
Understanding the Impact of the Best US Dollar Rate

In the interconnected global economy, the strength of the US dollar rate holds significant influence over international currencies and commodities. As the world’s primary reserve currency...

Long Position Vs. Short Position: What's The Difference?
Long Position Vs. Short Position: What's The Difference?

The tried and true formula for successful sales, "buy low, sell high," applies equally to financial markets. Traders use various types of transactions to achieve this, including short positions...

The most famous stock traders and their trading tips
The most famous stock traders and their trading tips

Who is the most successful day trader in the world? Who are the most famous stock traders on the planet? They come from different backgrounds with different career paths. But one is for sure...

Editors' Picks

FXCM information and reviews
MultiBank Group information and reviews
MultiBank Group
RoboForex information and reviews
Libertex information and reviews
Vantage information and reviews
FP Markets information and reviews
FP Markets

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.