There are two groups of traders: fundamentalists and technicians.

Fundamentalists are traders who use fundamental analysis to predict price action, and technicians are traders who use technical analysis to predict price action. Naturally, many traders employ both forms of analysis.

Let’s discuss fundamental analysis today, which is founded on macroeconomic factors.

Fundamentalists believe that the supply and demand of currencies are the results of observable economic processes. They, therefore, study the political, social, and economic forces that influence supply and demand.

Since currency prices are a reflection of the equilibrium between currency supply and demand, traders can predict price movements by examining a variety of data, including interest rates, the balance of trade, foreign investment, GDP, and many others.

Let’s discuss some of the major factors that would influence the fundamental analysis.

1. Central Banks

The act of central banks might be the one having the most significant influence on the market.

The list of activities that can be taken is too broad.

However, any interest rate-related changes are strongly recommended to keep an eye on because of their huge impact.

2. Geopolitical Tensions

There are conflicts or wars happening between countries in this global community, and this often brings adverse impacts on different tradable goods.

A country’s decision or agreement would influence a good’s supply or demand of tradable goods.

A good recent example was that gold price reached its all-time high at $2074 during the conflict between Russia and Ukraine.

3. Weather / Natural Disaster

A good example of weather affecting the fluctuation of price is during the winter time when the demand for natural gas increases to heat up their home. Demand increases, price increases.

While some weather effects may be unpredictable such as floods, tornados, etc.

Any weather event that could impact the citizens, or properties that require help from the local or federal government would potentially affect the nation’s currency.

4. Seasonality

Seasonality sometimes can be applied or related to the weather example above (demand for natural gas). But more often this is used in instances such as there is a season at the end of a calendar year where investors would sell off their declined equities to claim capital losses on tax.

5. Economic Releases

Trading economic releases can be a stressful and challenging task. Even the top guys in international major banks can’t predict it accurately all of the time.

There are two ways in trading the economic releases. Either you trade before the release, or after the release. Both have their pros and con.

If you trade well before the release, you may have an advantage of the price range in profit because the price would spike or dump vigorously during the economic release. The downside is that the price moves in the opposite direction of your bet, positioning on a negative floating state.

On the other hand, trading after the economic release would avoid putting yourself in a high-risk situation as above; While having an advantage in entering with the direction of market consensus.

Conclusion

Fundamental analysis is dependent on economic processes. There may be more factors affecting it, but the above given are considered the most observed situation when it comes to analyzing the fundamentals.

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