Fundamental Analysis in Forex - My Personal View

Hello everyone! Beginner Forex traders think that fundamental analysis is something very complex, requiring three university degrees, one of them in economics, outstanding intelligence, and a pile of free time to analyze statistics, coefficients, and so on.

That is not so.   Fundamental factors are not as complicated as many think. In fact, this approach is very simple. In today's review, I will tell you my PERSONAL view of fundamental analysis, which I consider correct and practical. This is purely my opinion, the way I myself apply external data in my trading. It is not the ultimate truth, but I consider this method simple and effective.

To begin with, let us look at the definition of fundamental analysis.

Fundamental analysis is an analysis of the situation on the currency market and corresponding forecasts based on data that are not directly related to charts. It is analysis based on economics, news, the current situation in the foreign policy of a particular country, as well as other factors. For example, oil prices, gold, the unemployment level, and other data that are unrelated to technical analysis.

If you go to a site with some kind of analytics, you will see a lot of news.

Moreover, every day something new appears:

Having cast a fleeting glance at such a site, a Forex trader immediately tries to find a connection among its news and draw some conclusions. After that, he goes to the chart and, based on his conclusions, builds his trading. But there a completely different picture takes shape, which would seem to directly contradict the article headlines.

All of this seems very difficult and confusing. But in fact, fundamental factors are not as complicated as many think.

The main secret lies in a very simple approach. At any given moment, the market focuses on one or two factors that are easy to identify.

They will be shouted about at every corner. And not by some narrowly specialized sites, but by the ones visited by the most ordinary people.

For example, ordinary news on Channel One, Mail.ru, or in the Vedomosti newspaper.

In order to understand what is influencing the currency market right now, there is no need to dig somewhere deep.

For example, let us take the Russian ruble. The factors affecting it at the moment are quite simple, and they have been talked about at every step for many months already. What are they at the moment? First of all, it is the price of oil. The dollar rises, the ruble falls. The second factor is the country's foreign policy. Recently there was news that the sanctions were extended for another year. In turn, Russia also extended the food embargo for one year. All news portals talked about this, including specialized ones. Even if you watch only Channel One, turn it on, and they will tell you about it there as well.

Some of you have just thought that everything is clear with the ruble. We are told about this every day and we can easily find it out. But what about, for example, EUR/USD?

Here too, everything is very simple and clear. At the time of writing the article, the main factor affecting the dollar and the euro in terms of fundamentals is the possible default of Greece.

All websites are broadcasting this.

These notes appear every day. Something happens, a new note appears, but the topic remains the same. Someone gave an interview that talks about this situation, somewhere statistics were published. But the main topic constantly remains unchanged.

In order to notice that all the news talks only about Greece, a university degree is not required.

Over the weekend, news appeared that the country was in panic, everyone was emptying ATMs, and on Monday the banks of Greece would not open.

Thus a GAP occurred:

There were many fears that a default of Greece would be announced at any moment. This was expected. There was not a single trader who thought there would be an upward GAP. Everyone expected a move down, and it happened.

On the EURUSD pair, lately there has been a decline with periods of growth:

Why is this happening?

Because the topic of unemployment in the eurozone was constantly circulating in the news. And in turn America presses and imposes its opinion on other countries. As a result, the dollar rises and the euro falls.

To understand this, it was not necessary to resort to complex statistical calculations or use some complicated algorithms.

We go to the Mail.ru website.

In the top news, stories about Greece, America, Europe, Russia, and so on are constantly published.

In addition, you can go, for example, to the Finam website.

It has a news column in which you can easily find what you need and draw general conclusions:

There is no need to follow the link and read the news itself.

Usually the meaning of the news is fully reflected in the headline.  And in order to understand that the same news is being repeated, only in a different context, there is no need to open every article and study it thoroughly.

If you suddenly see something incomprehensible to an ordinary person, then simply scroll past that news item and move on.

For example, news appeared that the business activity index decreased by several points. For an ordinary person who does not have an economic education, it says nothing. Therefore, you simply skip it and look for the information that is understandable to most people.

Another example: the website has news that the further strengthening of the ruble should not be expected:

Next we see news that the rating agency Fitch is assessing Russia and assigning it a new rating. Most likely, it will be bad, because all the news before that was bad. America imposes sanctions, our inflation is increasing, and so on.

Accordingly, the dollar exchange rate will rise, and the ruble will fall.

It is very simple. Visit news websites a couple of times a day. Look through the loudest headlines. And based on that, draw certain conclusions.

At the moment, by going to a news website, we see that things are still bad for Greece. And this means that Greece's fundamental factor will still influence the EURUSD pair.

But it is worth remembering that news is later forgotten. New relevant news appears and the old news is forgotten.  With the same Greece, most likely they will extend some kind of loan to it, or issue a new one. Everything will calm down and this factor will be forgotten.

Therefore, it is important to behave like an ordinary layman who is not too versed in economics. This is how we perform fundamental analysis.

But I remind you that this algorithm is my opinion, which may not coincide with yours. In practice, it works in my trading.

The main mistake of fundamental analysts is that they do not take other traders into account. They do not take technical analysis into account. Technical analysis, as we remember, takes into account the actions of other traders and the situations taking place on the chart. Last weekend there was a peak of anxiety about a possible default in Greece. All the news was blaring that the banks would not open on Monday.

The market opened with a GAP, and a GAP has a tendency to close:

The main thing is not to forget about the screaming news.

The same goes for USDJPY.

When working with this currency pair, we watch the news about oil.

Recently I did a review of the dollar-yen currency pair. In it I said that it depends on oil.

Therefore, we look at the technical side, but remember the fundamental side.

We assess it by the headlines of the loudest and recurring news. We look at the fundamental factors that everyone knows about.

Every day various statistics are released, meetings are held, politicians make speeches, and so on:

You do not need to calculate or assume anything from them. Either exclude news from your trading, or trade by technical analysis.

How should you work with such calendars?

First of all, we look at the previous value, then at the expected one and the final actual one, which appears after the news is released.

If the actual value is worse than the forecast, then that is bad for the currency. If the opposite is true, then that is good. If the figure remains about the same as expected, then the market will not react to it in any way.

You should pay attention to news items marked with 3 exclamation points.

On other websites they may look different. But still, usually these are 3 icons indicating the importance of the event.

We do not pay attention to the rest of the news.

Honestly, I try not to rely specifically on this method of analysis, because the price may well move against logic.

But at any given moment in time, there is a line of least resistance in the market, which is determined by fundamentals.

The line of least resistance is a kind of imaginary line against which it is difficult for the price to move up or down.

At the moment, for the EURUSD pair this is a line directed downward:

You can call this a global trend. It is much easier for the price to fall now than to rise.

For us, this means that if some slightly positive news appears, it will be easier for the price to stay in one place or fall than to rise.

To push it up, much more effort will be required so that it does not then fall.

The same thing happens with another currency pair, only the other way around. If the line of least resistance runs from below, then it is easier for the price to rise, as in the case of USDRUB:

At the moment, some strongly positive news is needed for the ruble to appreciate sharply.

But at the same time, for the growth of this pair to continue, not very strong negativity is enough.

Therefore, remember: if the overall trend on the chart is downward, then even if some positive news comes out that is slightly better than the forecast, this does not mean you should rush to open long positions.

But if the news is bad and the trend was already downward, then it will probably continue further.

To take fundamental analysis into account in trading, you do not need to be some kind of superhuman. You do not need to have 3 higher education degrees.

Just pay attention to what the news keeps discussing every day. On the most ordinary news websites, on television, or in newspapers. The things everyone talks about and knows. These factors mostly have the greatest impact on the market.

We pay attention only to economic news with a high degree of importance.

If the actual value of the statistics is better than the forecast, then this is good for the currency. If this value is below the forecast, then this is bad.

However, remember that the price is not obliged to follow this. If there is a strong downward trend present, then positive news is unlikely to be able to easily change the situation on the chart. The price may continue to decline further, because that is easier to do, since the majority follows the big trend.

We remember the fundamental factors, but at the same time we take technical analysis into account.

And the same happens in reverse. If right now we all know that a default of Greece is expected, then there is no particular sense in opening a long-term buy position on EURUSD. This is logical and understandable even to the simplest layman.

Remember these simple rules and then it will be much easier for you to trade on the Forex market.

Respectfully, Pavel Vlasov
TradeLikeaPro.ru