Fundamental analysis of the forex market

Every trader has had his experiences with crystal balls. Some of us seek them in technical indicators. For some, forex robots offer the greatest possibility of finding the holy grail. And sometimes we are tempted to believe that a secret report, a news service or something similar will give us the keys to limitless riches.

Sad to disappoint you, but we don't know who has the crystal ball, or the Holy Grail. What we do know is that if anyone really possesses such tools, he is to be sought among fundamental analysts, because the record of those is very clear. George Soros, Warren Buffet, Jim Rogers, Marc Faber, who all have stellar track records and reputations, openly declare that they owe their powers (magical or not) to the elixir of fundamental analysis.

Many traders are apprehensive of studying and applying fundamental methods. This is a sad fact, because experience shows clearly that fundamental analysis is the most credible and successful method for profiting in the forex market. In the following sections, you will find a detailed, but straightforward examination of the dynamics that run the world of money.

Fundamental analysis

Forex and the Yield Curve: Understanding Interest Rates

Whether one is a technical or fundamental trader, there is little disagreement that forex prices depend very strongly on the interest rate differentials between currencies. We are most used to measuring this differential in terms of the basic rate of... Read more...

Pure Expectations Theory

The simplest of interest rate theories is the pure expectations theory which assumes that the term structure of an interest contract only depends on the shorter term segments for determining the pricing and interest rate of longer maturities. Read more...

Liquidity Preference Theory

In the previous chapter, we noted that the pure expectations theory cannot explain why short-term yields are typically lower than longer-term yields most of the time. Read more...

Market Segmentation Theory

The third approach that we'll discuss in this article is radically different from the two previous ones that we've examined. Both the liquidity preference theory, and the expectations theory depend strongly on the presumption that debt instruments of different maturities... Read more...

Preferred Habitat Theory

In our previous discussions of both the expectations theory and the market segmentation theory we noted that both fail to explain some observed phenomena in the market satisfactorily. Read more...

How to make use of the yield curve in trading forex?

The yield curve is one of the best indicators of current economic conditions as perceived by the bond market. It is crucial for the pricing of many financial derivatives, as well as consumer credit and mortage rates for ordinary borrowers;... Read more...

The basics of fundamental analysis

In this section we will examine the various economic indicators released by the governments, central banks and statistical agencies of nations. We're not going into which indicator is what (although we will do that later), but our goal is to show you... Read more...

How to use fundamental analysis to profit in forex

The forex market is the market par excellence for fundamental analysis. Since currencies are the basic building blocks of all economic activity, all the developments in all the various sectors of an economy have implications for currency market trends. Read more...

A step-by-step guide to fundamental analysis of the currency market

In this brief guide we will try to provide you with a step-by-step plan for analyzing the global economic environment and deciding on which currency to buy or sell. Read more...

The Treasury International Capital reports — gauge inflow of capital with the TIC report

The Treasury International Capital reports measure the monthly demand of international investors and governments for US private and government securities. The TIC report measures the US financial account, and as such it is of great importance in demonstrating the inflow... Read more...

The power of fundamental analysis: George Soros and the Bank of England

Fundamental analysis examines the reasons behind the price action. The analyst uses economic indicators and news flows to decide on the causes behind price movements. Since one cannot determine the cause of something which has not yet happened, the causal... Read more...