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

The Impact of Inflation Measures on the Forex Market

Inflation has long been a serious enemy to economic growth and the world's central banks constantly try to keep inflation in check by adjusting monetary policy. Read more...

Scenarios for the Deutschemark’s Return

Back in mid-May, an interesting rumor hit the forex market and caused the Euro to sharply decline. The rumor consisted of the possibility that the German government was ready to reintroduce the Deutschemark and exit the European Monetary Union and... Read more...

Live Forex Trading Account Types

Once the domain of large banks, multi-national corporations and hedge fund managers, the forex market can now be traded by just about anyone with a recent computer and an Internet connection. Read more...

Fundamentals of Currency Evaluation

Many forex traders wonder what determines the value of a nation's currency. Read more...

Popular European Currency Nicknames

Just like the major dollar currencies have been assigned informal names among traders in the forex market, so too have the major European currencies. Read more...

Forex Trading Versus Gambling

Numerous attempts have been made to simplify trading in the forex market, and while a degree of success has been achieved in this area, trading forex is more than installing a trading platform, funding an account and clicking a buy... Read more...

Forex Trading Sessions

Unlike conventional stock and commodities exchanges, the forex market provides traders with the opportunity to trade 24 hours a day. The forex market keeps open around the clock from Sunday afternoon at 5:00 PM EST until Friday afternoon at 5:00... Read more...

Key Forex Fundamental Factors

Trading in the forex market and keeping track of changes in all of the possible influences on a currency pair's exchange rate can be a daunting experience, regardless of a person's experience and trading acumen. Read more...

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...

Common Nicknames for the Dollar Currencies

Just as many people have nicknames that their friends call them, all of the major dollar currencies and their primary traded currency pairs also have common friendly names. 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...

Key Fundamental Information for Forex Traders

Many experienced forex traders prefer to use objective technical analysis methods to direct their short-term trading activities, especially when it comes to timing trade entry and exit points. Read more...

How Gold Affects the Forex Market

Gold and other precious metals like silver, platinum and palladium have intrinsic value as hard physical assets with important industrial applications. They also have value due to their ability to store a considerable amount of wealth in a rather small space. Read more...

Oil and Forex: An Intimate Relationship

Although forex traders do not always have access to oil trading, due to regulatory constraints, trends in the oil market often have a very direct impact on their trading. Read more...

Forex Market Participants: Who Trades Forex?

When it comes down to who trades forex, the answer used to be largely confined to well-capitalized financial institutions and corporations. While such large players still dominate the forex market in terms of overall forex transaction volumes, the recent rise... Read more...

Balance Sheet of the Federal Reserve: Its Meaning and Implications for Currency Analysis

Apart from its responsibility of directing monetary policy, the Federal Reserve also functions as the regulator of the U.S. Financial system. It is also a powerful direct and indirect intermediary between various participants in the wholesale money markets, working to... Read more...

Gold and Inflation: How Strong is the Relationship?

For the past five to ten years we have been bombarded by commentary that gold is a hedge against inflation, and that wise, prudent, sensible people invest in precious metals in order to protect themselves against the out-of-control behavior of... Read more...

A Brief History of Currency Based Trading

The forex market currently makes up the largest financial market in the world, with a daily turnover of over US$2 trillion per day in a wide variety of actively traded currency pairs. Read more...

Currency Trading vs. Futures Trading: Forex & Eurex Under the Microscope

Since the late 90's, retail currency trading has become one of the fastest growing sectors in the financial industry. This success has largely been due to online trading platforms that are increasingly making forex trading available to consumers. Read more...

How Professional Forex Market-Makers Quote Counterparties

Many individual forex traders who trade online and have never worked for major banks wonder what goes on inside those huge forex market-making financial institutions. This article is written to assist individual traders in understanding the process that a professional... Read more...

How Professional Strategic Forex Traders Operate

Those who have arrived at the enviable position of being a professional strategic forex trader for a major international bank or hedge fund tend to focus on taking advantage of longer term moves in the forex market. Read more...

Key Fundamental Information for Forex Traders

Many experienced forex traders prefer to use objective technical analysis methods to direct their short-term trading activities, especially when it comes to timing trade entry and exit points. Read more...

Modern Forex Trading History

The world was a different place after the Second World War and the Allied Powers needed to reorganize the world economy, establishing currency standards for the world's nations was a priority and was the basis for the forex market as... Read more...

Currencies Traded in the Forex Market

The currencies most heavily traded in today's foreign exchange market roughly mirror the international trading activities of the countries involved. Read more...

Currency Options Explained

A currency option is a type of foreign exchange derivative contract that confers to its holder the right, but not the obligation, to engage in a forex transaction. Read more...

Forex – The World’s Largest Capital Market

The forex market makes up the largest single capital market in the world. With a daily turnover often seen of over $3 trillion, the forex market has no equal in the world of international finance. Read more...

Forex Currency Code, Quotation and Naming Conventions

The forex market, much like any other financial market, has its nicknames and slang terms for currencies and exchange rates. Some of them even have colorful histories behind them. Read more...

Understanding a Global Currency: What makes the Dollar the Reserve Currency of the World.

USD is the world's currency. Through its ups and downs, recessions, stagflation, bull and bear markets, wars, and turmoil, the Dollar has shown great resilience as the world's measure of value. Read more...

INVESTMENT FRAUD: FLAVOR OF THE YEAR MUST BE PONZI SCHEMES

Seasons change, as do tastes, but investment fraud this year seems stuck in one genre. Ponzi schemes and related arrests are dominating news headlines in communities far and wide. Read more...

Understanding Forex Forward Transactions

A forward transaction in the foreign exchange market is a contractual agreement to take part in a currency transaction on a date other than the spot value date at a specific rate of exchange. Read more...

Understanding Forex Spot Transactions

Spot foreign exchange transactions are simply those which are dealt for delivery on the spot value date. Historically, the term "spot" probably evolved from the phrase "on the spot". Read more...

Unusual Foreign Exchange Derivatives

The foreign exchange market has proven itself to be fertile ground when it comes to developing new types of derivatives for traders and hedgers to use to take or manage currency risk. Read more...

Where are the bond vigilantes?

One of the more puzzling aspects of market trends these days has been the obvious indifference of the bond market to budgetary indiscipline and rising risk associated with the increasing debt burden of the government. Read more...

Currency Devaluation Examples

The way that currencies appreciate and depreciate against each other depends on certain key factors. Under today's system of managed floating rates, currency values usually depend on market forces, political and economic factors, and the forces of supply and demand... Read more...

Currency Groups

In basic forex nomenclature, the different currency pairs of the world are divided into groups by the amount of daily trading activity and liquidity in each of them. Read more...

Currency Reserve Trends

A reserve currency is one held by central banks to pay their international debts with or to use as a way of influencing the exchange rate of their country's currency. Read more...

Developing a Single European Currency

A highly significant event that occurred in the forex market over just the past decade or so has been the unification of many of the national currencies of Europe into a single consolidated currency known as the Euro. Read more...

Exchange Rate Regimes

The foreign exchange market has gone through several major transitions over the years, moving through prolonged periods of fixed and floating exchange rate systems Read more...

Will the U.S. Federal Reserve ever Raise Interest Rates?

One of the most important questions that many traders have in mind with respect to the price of USD is about the direction of the federal funds rate. Read more...

Inflation and Forex Rates

Currency exchange rates can be "nominal" meaning that the rate is set in the marketplace, primarily on the world foreign exchange market, or "real" meaning the corrected nominal rate, adjusted for inflation. Read more...

The Increasingly Influential Euro

Perhaps one of the most significant developments in the foreign exchange market over the last ten or so years was the consolidation of the currencies of sixteen European countries (now know collectively as the Eurozone) into a single currency known... Read more...

Trading Forex and Why it is so Popular

As a result of international commodity and finished product trading activities, the currencies of the major nations of the world usually remain in demand and see active trading on the forex market. Read more...

Austerity or Profligacy: Can America Convince Europe to Adopt its Spending Habits

The widening gap between the approaches adopted on both sides of the Atlantic towards mending the damage done by the economic crisis could not be more striking. Read more...

Advantages of Trading Forex

In addition to the fact that the foreign exchange market trades around the clock, five days a week, the currencies that are the object of trading in the forex market are among the most actively traded assets in the world. Read more...

Benefits of High Forex Market Liquidity

The forex market is not only the largest capital market in the world, but also has the largest number of individual and corporate participants. The chief benefit of having more participants in any capital market consists of the higher degree... Read more...

The Relative Risk Ratio: An Alternative Way to Manage Risk in Forex Trading

Without complicating the subject too much, and engaging in a discussion which may generate results that are inapplicable in the context of the common tools possessed by a retail trader, we can identify three variables in the equation that determines... Read more...

Forex Market Participants

As the world's largest financial market, the forex market has a number of types of participants. They also vary considerably in their reasons for trading forex. Read more...

Assessing Central Bank Reserves for Forex Profits: Reading the COFER Report

The Currency Composition of Official Foreign Exchange Reserves or COFER Report, is the most useful public source of data relating to central bank reserve allocations. The report is published by the IMF quarterly, and can be downloaded from the institution's website. Read more...

Why Currencies Trade Against the Dollar

Currencies always trade in pairs because the value of each currency is measured against that of another currency, yielding a rate of exchange for the currency pair. Read more...

Advantages of the Unregulated Forex Market

Efficient medium and long term trading styles in any market generally involve following the major underlying trend by trading in its overall direction. Read more...

Currencies and the Average Person

The average person does not even consider what value the money in their wallet has, except perhaps when shopping and attempting to get the best possible goods for the funds they have available. Read more...

Currency Options for Forex Traders and Hedgers

Currency options confer the right - but not the obligation - on the buyer to be able to enter into a specified underlying forex contract at a given exchange rate for a certain period of time. Read more...

Forex Market Regulatory Agencies

With the exception of currency futures and options traded on exchanges like the Chicago IMM, foreign exchange trading generally takes place in a remarkably decentralized manner. Read more...

Front Running Forex Orders

Another common form of currency market manipulation, and perhaps the closest activity to insider trading in the forex market, would be front running large currency orders. Read more...

The Strategic Importance of the U.S. Dollar

Without a doubt, the most important and strategic currency traded in the forex market is the U.S. Dollar. The Dollar is a part of currency pairs that together account for over 85% of trading volume in the huge forex market. Read more...

Economic News That Affects Currencies

One of the most important types of information available to a forex trader comes in the form of economic news or data releases. Such key news items concerning the economic health of a country will have a tendency to directly... Read more...

Forex Derivatives

Thanks to the unmatched liquidity and competition in the forex market, trading currencies also allows a trader to take advantage of a number of other instruments which use currencies as the underlying asset. Read more...

Volatility in the Forex Market

Volatility is a useful concept for forex traders that can give them a sense of the risk involved in trading a particular currency pair. This can assist them in more intelligently choosing an appropriate size for a trading position based... Read more...

Fundamental Forex Factors

When it comes to forecasting forex rates, the science of fundamental analysis involves taking into account a variety of relevant economic and political factors for one currency relative to the other currency in each currency pair considered. Read more...

Using Fundamental Analysis to Measure Market Sentiment

A reasonably accurate evaluation of market sentiment can be an extremely valuable asset to a forex trader if the knowledge is used with caution. Read more...

Floating Exchange Rates Increase Currency Speculation

Trading in currencies has gone through numerous attempts to control fluctuations in exchange rates, as well as efforts to fix or peg currency values to the price of hard assets like gold. Read more...

Forex Trading Words of Wisdom

A profitable forex trading system will incorporate many of the trading maxims or words of wisdom that are commonly passed on from seasoned traders to novices. Read more...

Modern European Exchange Rate Systems

The Bretton Woods system of fixed exchange rates provided considerable stability among the exchange rates of the major European nations in the post World War II period. Read more...

Starting Out Trading Forex

Public interest has steadily grown in the forex market since the relatively recent advent of online forex trading for retail clients. Most online forex brokers offer their proprietary trading software free of charge to their clients, as do some independent... Read more...

The Professional Interbank Forex Market

The largest forex trading volumes by far go through the network of professional forex dealers known collectively as the Interbank forex market. Read more...

Using Risk Reward Ratios When Trading Forex

When using appropriate trading risk management techniques, an especially useful technique to use to assess the quality of a particular trading opportunity involves calculating the risk to reward ratio of each potential trade. Read more...

Words of Warning for Forex Traders

A profitable forex trading plan should keep a trader from committing some of the classic mistakes which many forex traders pay dearly to learn. Read more...