Fundamental analysis is frequently used to monitor figures such as interest rates, unemployment rates, gross domestic product (GDP), and other sorts of economic data that come out of countries to analyse movements in the currency market. A trader undertaking a fundamental study of the EUR/USD currency pair, for example, would find information on Eurozone interest rates more beneficial than information on US interest rates. Those traders would also want to be aware of any big news releases from each Eurozone countries in order to assess the economy’s health.
Those who trade in the foreign exchange market (forex) utilize the same two types of analysis as those who trade in the stock market: fundamental analysis and technical analysis. Technical analysis is used in forex in a similar way: the price is supposed to reflect all news, and the charts are examined. But, unlike firms, countries do not have balance sheets, so how can a currency be subjected to basic analysis?
As fundamental analysis is concerned with determining an investment’s intrinsic value, its application in forex requires determining the economic conditions that influence the value of a country’s currency. We’ll take a look at some of the most important underlying elements that influence a currency’s movement.