Watch these essential economic indicators in forex fundamental analysis. When it comes to learn Forex trading, it is inevitable that you will study how to forecast the Forex market. Forecasting the market is extremely helpful to make the right trading decision. For this reason, professional traders usually make use of fundamental and technical analysis as a method to predict where the market goes. In this article, we will focus more on the fundamental analysis.
Fundamental analysis itself is a technique of analyzing Forex market in order to predict certain currency price. Different to technical analysis, this method focuses more on economy state such as interest rate and GDP in forecasting the Forex market. Economy condition of a country is highly influential for this method of analyzing. As a result, a trader needs to watch out on recent economy reports.
Top 3 Essential Economic Indicators to Watch in Fundamental Analysis
Then, what kind of economic condition that is required to be monitored in Forex fundamental analysis? Actually, there are a few economic indicators that need to be observed in order to predict the direction of the market. These indicators typically can be discovered in news outlets as well as news reports. To assist you, here are some of the essential economic indicators in question.
First Indicator: Interest Rate
Interest rate is no doubt a primary indicator in fundamental analysis. For your information, there is more than one type of interest rates out there. However, we are going to concentrate on the base or nominal interest rates which are arranged by central banks. The percentage which private bank pays to central bank for borrowing certain currencies is known as nominal or base interest rate.
Whenever you read or hear ‘interest rate’ in Forex market, people are commonly referring to that nominal interest rate. Then, how can we use information about interest rate for our advantage in the Forex market? From the viewpoint of Forex fundamental analysis, it is recommended to start searching for trading chances when there is a changing interest rate whether it is low or high.
Second Indicator: Inflation
It is common for news to release on inflation report based on the fluctuations in the value of goods in certain period of time. Remember that each economy has different level of what is called ‘healthy inflation’. Inflation itself refers to a constant increase in the number of currency in circulation. Inflation is considered to be hard to control since money come from many sources.
When it comes to Forex trading, the lower the rate of inflation, the slower the currency decreases in value. Moreover, it will be more reliable for an asset is for overseas investors. On the other hand higher inflation rate can result currency to depreciate faster. Then, it will be less consistent of an asset for foreign investors since both resulting in weak point.
Third Indicator: GDP
GPD or Gross Domestic Product calculates the total value of all services and goods created in a country through a given period. It is believed as one of the most important fundamental indicators in the Forex market. GDP might be simple when it comes to economic theory, but it will be much different thing when the relation of inflation and GDP is taken into account.
For Forex traders who learn Forex especially fundamental analysis, it is more significant to understand when the GDP improves is in line with the other economic indicators like Consumer Price Index and other things that can hint the economic strength and currency movement. That’s all some of the important economic indicators you should monitor if you want to succeed using fundamental analysis in Forex trading.