Fundamental analysis is like the foundation. The forex market is very dynamically changing market and also a very volatile market at times. The price actions change continuously and an analysis of that is very important for short term trades and hence for retail traders. Technical analysis help in that. But overall the longer-term moves are dictated by the fundamentals of the economies concerned. Fundamental Analysis is like the canvas and Technical Analysis is the colors on it. Trade with the combination and you can have the beautiful painting or shall we say a healthy bank account?
Fundamental analysis for Forex Trading is all about the supply and demand of a particular currency and the health of the economy of the country or region in question.
Fundamental Analysis is used to analyze the valuation of currencies by monitoring various economical, social, political and environmental factors. There are a number of economic indicators, such as interest rates, unemployment rates, gross domestic product (GDP) and many other which need to be monitored. We need to track various economic releases from various countries/economies which come out periodically..
Every country releases the economic data periodically. The release of these economic indicators affect the currency pair prices. A list and details of the key economic indicators are as follows. You may please click on the indicators to get the details/definitions.
Please also visit the sub foum for random but important Global economic data.
Economic factors do not change overnight. A strong economy does not fall into the category of weak ones over a short time and hence while we keep a look on the long-term fundamentals, we cannot use those for the day-today trading. Trading is different from investing and even a medium-term trade may only last for a few days or a couple of weeks. What governs the price movement during short-term or medium-term is the day-today economic releases and news which may have some effects on the economic situation. The news can be a major merger or acquisition of major corporations or a political news indicating some major change in the government which may affect economic policies or even a natural disaster. Using fundamental analysis is keeping track of the economic events and releases and also on other such news items and taking our trade positions in the direction of changing market sentiments.
Every nation or economic zone comes out with various economic data which indicate the health of the economy. Some economic indicators are critical and a change in those may bring a major change in the price action and some may not be as critical. The first step is to analyze and understand the importance of various economic indicators and then to keep an eye on the periodically released data. The importance of various indicators change from country to country. For example a decline in housing and house construction may have a major effect on U.S. Dollar but the same data may not have the same effect on Japanese Yen. The reason is simple that for an average Japanese person, owning his or her own house is not one of the important objective as it may be for his or her American counterpart.
We are listing below some of the major economic releases and economic indicators which are important for your analysis of the market on fundamental basis.
Some of the main economic indicators are listed as follows. Every country and economic zone will have a version of these and the data is released periodically. It is always better to keep an eye on these economic releases even if we base our trading on technical analysis. There may be quite volatile price actions just before and after any important economic data is released.
| Economic Indicators |
Country/ Economy |
Description | Impact of volatility | Remarks |
|---|---|---|---|---|
| Current Account | All | Current Account | Medium to High | A high reading is seen as positive (or Bullish) for thecurrency, whereas a low reading is seen as negative (or Bearish). |
| Trade Balance | All | Trade Balance | Medium to High | A high reading is positive or bullish, while a low reading is negative (or bearish). Trade balance generally creates more volatility for USD. |
| Treasury International Capital (TIC) | US | Treasury International Capital (TIC) | Medium | A high reading is positive (or bullish) for the USD, while a low reading is negative (or bearish). |
| Manufacturing/ Physical Output of factories, Mines & Utilities | US | ISM Manufacturing Index | Medium | A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish). |
| US | Empire State Business Conditions Index | Medium | A positive result indicates bullish for US Dollar, while a negative result shows poor growth of US Dollar. | |
| All | Industrial Production | Low to Medium (Medium for Japan) | High reading is positive (or bullish), while low reading is negative (or bearish) | |
| All | Purchasing Managers' Index | Medium | A result above 50 signals is bullish for the currency, whereas a result below 50 is seen as bearish. | |
| Durable Goods | US | Durable Goods Orders | Medium | A high reading is positive (or bullish) for the USD, while a low reading is negative or bearish. |
| Consumer Confidence | All | Consumer Confidence | Medium | A high reading is positive (or bullish) for the currency, while a low reading is negative (or bearish). |
| US | Reuters/ Michigan Consumer Sentiment Index |
Medium | A high reading anticipates positive (or bullish) for the USD, while a low reading is seen as negative (or bearish). | |
| All | Retail Sales | Medium to High (High for US) | A high reading is seen as positive (or bullish), while a low reading is seen as negative (or bearish). | |
| US | Retails Sales Ex Autos | High | A high reading is seen as positive (or bullish), while a low reading is seen as negative (or bearish) for USD. | |
| US | Personal Spending | High | A high reading is seen as positive (or bullish), while a low reading is seen as negative (or bearish) for USD. | |
| Japan | Consumer Confidence House Holds | Medium | A result above 50 is positive (or bullish) for the JPY, whereas a result below 50 is seen as bearish. | |
| Inflation | US | Personal Consumption Expenditure -Price Index, Core | High | A high reading is bullish for the USD, while a low reading is bearish. |
| All | Consumer Price Index (CPI) | Medium to High | A high reading is seen as positive or bullish for the currency, while a low reading is seen as negative. | |
| US | Gross Domestic Purchase price Index | High | A high reading is seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish. | |
| UK | Core Consumer Price Index | Medium | A high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish). | |
| UK | Retail Price Index | High | A high reading is seen as positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish). | |
| All | Producer Price Index (PPI) | Low to Medium | A high reading is seen as positive (or bullish) for the currency, whereas a low reading is seen as negative (or bearish). | |
| US | Consumer Price Index (CPI) Ex Food & Energy | Medium | A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish). | |
| All | Import Price Index | Low to Medium. Medium for US | A high reading is seen as positive (or bullish), while a low reading is seen as negative (or bearish). | |
| UK | BOE Inflation Letter | High | A high reading is seen positive (bullish) for the GBP, whereas a low reading is seen as negative (bearish). It is worth noting that this tentative letter is only published when the CPI (YoY) is above 3.0%. | |
| Interest Rate | All | Interest Rate Decision | High | Raising interest rate is positive, or bullish, for the currency. While interest rate cuts are negative or bearish for the Forex pair. |
| Employment | US | Non-Farm Employment Rate | High | A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish). |
| All | Unemployment Rate (Jobless Rate) | High to Medium | A decrease of the figure is seen as positive (or bullish) for the currency, while an increase is seen as negative (or bearish). | |
| US | Personal Income | High | A high reading is positive for the USD, whereas a low reading is negative. | |
| US | Average Hourly Earning | High | A high reading is also positive for the USD, while a low reading is negative. | |
| US | Average Weekly Hours | High | A high reading is positive (or bullish) for the USD, while a low reading is negative. | |
| Employment | US | FOMC Meeting Minutes | High (specially in volatile markets) | If they show a hawkish outlook, that is seen as positive (or bullish) for the currency, otherwise it is seen as negative (or bearish). |
| All | Central Bank Chairman/ Governor's Speech |
High (specially in volatile markets) | If they show a hawkish outlook, that is seen as positive (or bullish) for the currency, otherwise it is seen as negative (or bearish). | |
| UK | Bank of England (BOE) Minutes | High | The comments may determine a short-term positive or negative trend. If they show a hawkish outlook, that is seen as positive (or bullish) for the currency, otherwise it is seen as negative (or bearish). | |
| GDP | All | Gross Domestic Product | Medium to High (High for US) | A rising trend has a positive effect on the currency, while a falling trend is seen as negative (or bearish). |
| Market Sentiment Reports | Germany | ZEW Survey | Medium | An optimistic view is considered as positive (or bullish) for the EUR, whereas a pessimistic view is considered as negative (or bearish). |
| Germany | IFO- Business Climate and Expectations | Medium | The positive economic growth anticipates bullish movements for the EUR, while a low reading is seen as negative (or bearish). | |
| Japan | Tankan Index | Medium for Non- Manufacturing. Low for Manufacturing | A result above the 0 level is seen as positive (or bullish) for the JPY, whereas a result below 0 is seen as negative (or bearish). | |
| Housing | US | Mortgage Bank Association (MBA) Mortgage Applications | Medium | A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish). |
| US | New Home Sales | Medium | A high reading is seen as bullish for the USD, whereas a low reading is seen as bearish. | |
| US | Housing Price Index | Medium | A high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish). | |
| US | Construction Spending | Medium | A high reading is seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish. | |
| US/Canada | Housing starts | Low to Medium. Medium for Canada and US | A high reading is seen as positive (or bullish) for the Currency, while a low reading is seen as negative (or bearish). |
We always believe in using Forex Technical analysis in combination with Fundamental Analysis when trading currencies. Please also check the Fundamental Analyis Forex Forum.
