Fundamental Analysis

Fundamental analysis is the study of economic, political, and social factors that influence currency values. Instead of looking at charts and patterns (that's technical analysis), fundamental analysts focus on interest rates, GDP growth, employment data, inflation, trade balances, and central bank policies to determine whether a currency is likely to strengthen or weaken.

The most impactful fundamental events in forex are central bank interest rate decisions. When a central bank raises rates, it typically strengthens the currency because higher rates attract foreign investment seeking better returns. The Federal Reserve, ECB, Bank of England, and Bank of Japan are the central banks that move markets most.

Many successful forex traders combine fundamental and technical analysis. Fundamentals tell you which direction a currency should move over weeks and months (the "what"), while technicals help you time your entries and exits (the "when"). Pure fundamental trading in forex is rare at the retail level because currencies can stay "irrational" longer than your account can stay solvent.