In the last lesson we learned what technical analysis is. Technical analysis involves the careful study of diagrams to identify patterns or trends. In contrast, fundamental analysis or fundamental analysis does not work on the chart. Fundamental analysis involves studying economic data reports and news headlines (and now Trump’s random tweets.).

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Fundamental analysis is a way to navigate the Forex market by analyzing the economic, social and political forces that may affect currency prices.

It is supply and demand that determine the price or, in our case, the exchange rate. In fundamental analysis, as its name suggests, we examine the root causes of supply and demand.

It is easy to use supply and demand as indicators to determine prices. The hard part is analyzing all the factors that affect supply and demand. In other words, you have to look at different factors to determine which economy, like a Swiss watch, is excellent and which economy is in a state of disrepair.

You need to understand why and how certain events and factors, such as rising unemployment, affect the country’s economy and monetary policy, and ultimately the demand for foreign exchange in that country.

The idea behind this type of analysis is that if a country’s current or future economic outlook is good, its currency should increase.

The better the country’s economic situation, the more foreign businesses and investors will invest in that country. This will require the purchase of that country’s currency to invest in that country and consequently more demand for that country’s currency.

Fundamental analysis in a nutshell:

Bad economy means less money and good economy means more money.

For example, let’s say that the value of the US dollar is rising; Because its economy is developing.

As the economy improves, interest rates may need to be raised to control growth and inflation. Higher interest rates make dollar-denominated financial assets more attractive.

To achieve these lovable assets, traders and investors must first buy dollars. This increases the demand for that country’s currency. As a result, the US dollar is likely to appreciate lower than other currencies with lower demand.

In future lessons, you will learn which economic data points increase the price of currency and why.

You will find out who the head of the US Federal Reserve is and how retail data reflects the state of the economy. You have to whisper global interest rates like the lyrics of your favorite song.

To use Forex analysis, you need to understand how economic, financial, and political news affect the exchange rate. This requires a good understanding of macroeconomics and geopolitics.

There is no need to be afraid of such words.  For now, it is enough to know that fundamental analysis is a way to analyze the potential movements of a currency (in order to increase or decrease the value of a currency) by a country’s strong or weak economic outlook. We promise it will be very attractive.

Fundamental analysis in the stock market

We said that it is supply and demand that determine the price. Fundamental analysis is also a way to analyze the factors affecting supply and demand.

This type of analysis is also very useful in the stock market. You should also look at the stock you want to buy from a fundamental perspective to see if it is worth buying.

Fundamental factors can include the company’s internal issues, issues related to the company’s industry or even rumors around the company.

Suppose you see an unforeseen increase in product sales in a company report. According to your analysis, this means increasing the company’s profitability and thus more demand for this share. Higher demand will inevitably lead to a rise in stock prices.

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