Forex Fundamental Analysis

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Factors that Influence the Fundamental Indicator
When it comes to the Forex market a lot will depend on your ability to judge how the currency will perform in the coming times. A currency that you expect will rise more in value is worth holding on to while one which is expect to fall is best avoided. For this purpose fundamental indicators are often employed by many traders.

What are fundamental indictors?
Also known as non -technical indicators, fundamental indicators take into account the political and economic conditions of a country and try to predict if the currency of the country will rise in value or not. With the knowledge if the currency is undervalued or overvalued, the Forex trader can develop trading strategies that will help benefit from either of these situations.

What are the factors that influence fundamental indicators?
There are many factors that will need to be taken into account when one is looking to forecast how the currency will perform via the fundamental analysis method. Some of these factors and their indications are discussed below –

  • High interest rate – high currency performance – If the interest rate offered by the country is high, they are going attract foreign investments and this will mean that the currency of the said country will appreciate. On the other hand if the interest rates offered by a country are low then the foreign investment will stay away and this will automatically result in a downfall in the currency value.
  • High exports – high currency performance- The trade balance will definitely affect the currency value of a nation. Countries where the exports are higher than the imports will thrive and their currency is going to rise in value. On the other hand, nations that are importing more while exporting less are going to see a downfall in their currency.
  • High GDP – high currency performance – The gross domestic product of a country must be high in order for its currency to rise in value. Countries where the GDP is low indicate a weak economy and this is a clear sign that the currency of the country is going to take a blow and fall in value.
  • High employment rate – high currency performance- Countries where the rate of employment is high clearly indicate that the economy is thriving and this means that the currency is also going to rise in value over time. Similarly if there are too many individuals without a job this goes to show that the situation is not good and the currency will fall in rate.
  • High inflation – low currency performance- In case the inflation rate of the country is high, this will automatically mean that the currency of that nation is going to weaken in value. A high inflation rate indicates fluctuations that are not considered good. Of course a steady rate of inflation is bound to be in order, but in times where the jumps are too big and too sudden, it does spell doom for the currency of the country.

Keeping an eye on these factors will help to decide which way the currency of a country is headed and this is known as fundamental analysis.

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