Traders in the foreign exchange market (forex) rely on the same two basic forms of analysis that are used in the stock market: fundamental analysis and technical analysis. The uses of technical analysis in forex are much the same: the price is assumed to reflect all news, and the charts are the objects of analysis. But unlike companies, countries have no balance sheets, so how can fundamental analysis be conducted on a currency?
Since fundamental analysis is about looking at the intrinsic value of an investment, its application in forex entails looking at the economic conditions that affect the valuation of a nation’s currency. Here we look at some of the major fundamental factors that play a role in a currency’s movement.
KEY TAKEAWAYS
- Foreign exchange, or forex traders, rely on technical and fundamental analysis techniques that are very similar to those used in the stock market.
- In forex, a fundamental analysis might involve looking into the economic conditions that affect the value of the country’s currency.
- This can include economic indicators, industrial production, gross domestic product(GDP) or other data that reflect the strength of a country’s economy.