There are many ways to analyze the forex market. Though there are multiple methods to analyze the market, the primary purpose of all forms of analysis is to find out the excellent trading opportunities within the market. When classified, there are three main ways of forex market analysis. They are Technical analysis, Fundamental analysis, and sentiment analysis. Let’sLet’s look at these types of analyses in detail.
In finance, Simply Fundamental analysis is the analysis of a business’s financial statements (usually to analyze all the business’s assets, liabilities, and earnings). This meaning seems much valid in the case of the stock market. But when analyzing the forex and futures market, fundamental analysis is about studying the overall state of the economy. As a forex trader, one will consider interest rates, production, employment, GDP, housing, manufacturing, and many more. In short, fundamental analysis in the forex market is trying to know if the country’s economy is doing well because the country’s currency value is directly affected by the country’s economic conditions.
Fundamental analysis studies the political, economic, socio-cultural, and physical environmental factors that impact the Forex market. These factors are essential because the market reacts to the information generated by these factors. Long-term trends on the needs and huge moves are watched because of the fundamental factors behind them. So Fundamental reports act as a catalyst in the market, creating much high volatility. Economic forces, economic indicators, geopolitical environment, fundamental announcements, and human psychology mainly drive the prices.
While we talk about the fundamental analysis, we look at the market-moving economic indicators. Economic indicators can have a significant impact on the foreign exchange market(Forex). Knowing how to use that information well can increase the profitability of forex traders. Those economic indicators are released in a marked interval of time. One can understand the dates and times of the release of economic indicators by looking at the forex economic calendars, which are freely available on the internet. Let’s look at some of the most critical market-moving economic indicators.
Interest Rate Decision
The central banks of the countries generally adjust interest rates. The main motive of changing the interest rate is to control inflation. Inflation is controlled mainly by controlling the supply of money in the economy. If the inflation is high, the central bank increases the interest rate, which will gradually decrease the money supply in the economy because rising interest rates means loans are expensive and the deposits become attractive. This will reduce the money supply in the economy, making the currency’s value stronger and the inflation to fall.
Employment Situation Report
The department of labor usually releases employment data. It deals with the employment situations of that country. These are the data that are mainly concerned with the employment situations.
The unemployment rate
The unemployment rate reflects the number of unemployed people expressed in terms of percentage. The unemployment rate seriously has a massive impact on the economy so does its currency. A high employment rate is always favorable in the economy, while low employment rates are bad situations. And the targeted currency value also falls as the job market declines.
The Non-farm Payroll
The forex market tends to be highly volatile during the release of News NFP data. NFP is the news statistics released by the U.S. Bureau of Labor Statistics, whose objective is to show the total numbers of paid U.S. workers of any business, excluding the following workers:
-General government workers
-private household employees
-Workers of the nonprofit organization that assist individuals
This data represents the average number of hours per week worked by the non-farm section employees.
Average hourly earnings
This data sheet represents the average hourly earning rates of the primary industries employees working.
Consumer Price Index (CPI)
CPI is the primary tool for knowing the inflation of a particular country. Inflation is the rise in the general price level. When the CPI report is favorable, its currency reacts very bullishly to it and vice versa.