Forex for a trader
Forex fundamentals news edge in the market

Forex fundamentals news edge in the marketForex Fundamental Analysis for 2018. Using fundamental analysis to trade Forex can be very dangerous when it is not done right. Ironically, traders relying upon fundamental analysis rather than some form of technical analysis tend to lose money more quickly than if they just stuck with technical analysis. This seems strange and counter-intuitive, but it is true. In this article, I will explain why using fundamental analysis exclusively can be dangerous, then I will show how the right type of fundamental analysis can be used to make your trading better, if it is something you really want to use. I will focus on what the fundamental situation will likely be at the start of 2018. You certainly don’t need to use fundamental analysis to make money over the long-term in the Forex market, but it can help. Why Mechanical Fundamental Strategies Perform Worse than Trend-Following Strategies. Fundamental analysis sounds like a sensible, conservative method to use to decide where to put your money. After all, if you were considering investing in a stock, you would feel good about performing due diligence on the company, checking its financial position, and being convinced that the economy was likely to grow over the time horizon of your investment. So, doesn’t it make sense to feel the same way about the country whose currency you are buying, even if your time horizon is shorter than that of a typical stock investment?

Well, it’s a logical approach, but there are two immediate problems in applying this principle to Forex. Firstly, which fundamental indicators are you going to use to make your call on the fundamentals? Secondly, it seems clear that fiat national currencies are far less affected by economic fundamentals than stock markets are, so even if you pick the right variables for your analysis, they are not likely to be very useful. Currencies are not the “stock” of a nation, they are debt instruments issued by its central bank. Let’s consider some of the most popular fundamental analysis indicators which can be applied to currencies: Fair Value: you consider the relative costs of a basket of goods in two different currencies, selling the one which seems overvalued, and buying the one which seems undervalued, hoping the values will merge. It is very logical, but it simply has not worked in recent decades. It completely discounts the fact that there are good reasons why goods and services are relatively more or less expensive in different countries. Interest Rate Differential: currencies with higher interest rates tend to attract more investment, meaning speculative money should flow from currencies with lower interest rates into currencies with higher interest rates. Therefore, it should be possible to profit from buying currencies with higher rates using currencies with lower rates. An added benefit of such a fundamental strategy is that the overnight fees charged daily by your broker should be low, or even positive in your favor, as they are based upon the market’s expectation of the future rates. The good news is that this strategy has been shown to generally produce a small positive edge. The bad news: the edge is small, and the strategy keeps you out of some great trades.

It also tends to stop working during times of market turbulence. There can be strong, long-term price trends going against LIBOR rates for months without end. Furthermore, for some years now we have been living in an era of low interest rates, so the available differentials between the major global currencies are very small. Economic Growth: buy currencies with strong andor increasing GDP numbers, and sell currencies with weak andor falling GDP numbers. This sounds logical, yet there is no evidence it works as a standalone strategy. Central Banks are Key. If typical fundamental approaches are flawed, what can you do? Well, a better fundamental analysis strategy is to be aligned with the positions of the currencies’ central banks. Consider the fact that any central bank can create as much supply of their currency as they want, and reduce a lot too, as well as (usually) having the power to set the currency’s interest rate. This is a lot of power to move the price. Unfortunately, central banks don’t put up signs saying “tightening” or “relaxing”, which would make this kind of strategy an awful lot easier! Yet it is possible to follow the central bank releases yourself, which are given monthly (in most cases), and to read intelligent commentary on them, to develop an opinion. You will probably require the intelligent commentary as even if you read the full texts of the central bank releases, unless you are very clear what you are looking for, you probably will not be able to come to a correct conclusion. Another approach which works well is to look for surprises in central bank releases. For example, at the time of writing, the Bank of Canada has just made it clear that they see a rate hike in January 2018 as less likely. This surprised the consensus, and the value of the Canadian Dollar continues to fall. It is normal for most central bank releases to move their currency, but when there is follow-though the next day instead of a reversion back to the mean, that can be a good sign that you have a fundamentals-driven price move going on which is likely to last longer.

Central Banks in 2018. A good starting point for a productive program of Forex fundamental analysis is to make a list of the major central banks, in order of importance, and to summarize their attitude towards their currency. Then it makes sense to check whether there are any trends which are matching any identified divergence between central banks. It is not an exact science, and it is important to realize that there are other major fundamental factors which can come into play. An excellent example is Britain’s impending departure from the European Union, the exact terms of which are still under negotiation. As Britain’s economy is highly dependent upon the terms of its trade with the European Union, the terms of that trade are going to affect the pound, with the pound advancing on a softer Brexit and falling on a harder one. So here is my 2018 assessment of the currency stances of the important central banks (in order of importance), ranked by order of importance to the Forex market. Federal Reserve (U. S. dollar) – tightening monetary policy, but concerned about the lack of inflation, meaning inflation rate data becomes important. If inflation is higher than market expectations, the USD should tend to rise on anticipation of more and faster future rate hikes. European Central Bank (euro) – minor, very cautious tightening is possible in the shape of unwinding the balance sheet, but interest rates remain negative and inflation is almost non-existent.

It is still hard to imagine rate hikes. Bank of Japan (Japanese yen) – there is some economic growth, but it looks as if the BOJ is on autopilot as no tightening or rate hikes are expected throughout the entirety of 2018 and beyond. Inflation remains very weak. Bank of England (British pound) – there is little economic growth, but the BoE seems set on a course of further tightening of monetary policy by hikes in the rate of interest, because the rate of inflation has climbed to a relatively high 3.1% annualized rate. Without the inflation, there would probably not be any hikes happening soon. Swiss National Bank (Swiss franc) – this is a special case. As almost all major national currencies are extremely weak, the SNB maintains an extremely loose monetary policy with a negative interest rate of -0.75% to stop the Swiss Franc from appreciating as a safe-haven investment. The policy has succeeded in stabilizing the Franc, and this currency is an extremely dangerous bet. It has a strong tendency to revert to the mean and stay stable, rather as Gold has over recent years. Growth and inflation are extremely weak, so the SNB is determined to stop the currency from appreciating. Bank of Canada (Canadian dollar) – GDP and inflation have been relatively healthy, with the interest rate also at a reasonable level of 1.0%, but recent concerns about a slowing of growth have staved off the likelihood of monetary tightening happening soon. This is one to watch carefully, but we might be seeing the start of a fundamentally-driven long-term weakening in the Canadian Dollar. Reserve Bank of Australia (Australian dollar) – despite historically low interest rates, inflation and growth remain stubbornly low, and they seem to be taking a turn for the worse as poorer than expected trade data comes in. While it doesn’t look like we are going to see any weakening of policy, further tightening appears to be convincingly off the agenda. Reserve Bank of New Zealand (New Zealand dollar) – growth is relatively healthy, though the GDP is still barely 1%, and the rate of inflation is marginally higher than the relatively high interest rate.

The new government seem to be determined to pursue a balancing act of avoiding any real tightening while also avoiding significant loosening. All this suggests a somewhat weak monetary policy, although the market has been impressed by the nomination of a new Governor of the RBNZ who is expected to keep managing inflation as a high priority. Conclusion on the State of Forex Fundamentals. There is no doubt that the global picture of the advanced economies listed above is one of a generally weak monetary policy, with little divergence in terms of growth, policy, or interest rates. This points to a dull Forex market, which is what we are currently experiencing. However, it can be said that fundamentally, the U. S. dollar currently looks relatively strong, followed by the euro. Continuing weakness looks most likely in the Canadian dollar. This suggests that the most fundamentally convincing Forex trades which match the technical picture are long USDCAD, and possibly long EURCAD as well. It is crucially important to only trade fundamental conclusions you might arrive at when they are matched by the technical picture. There should be a reasonably long-term trend in the direction of the fundamentals, or at least it should be clear that the price is continually failing to move against it. This is the best way to use fundamental analysis in Forex trading. Now, this would suggest that the trades best supported by a combination of fundamental and technical factors are likely to be long USDCAD, long EURCAD, and possibly long USDJPY as well. Fundamental analysis, just like technical analysis, requires constant review of the situation, which can change from month to month, so the current picture is not guaranteed to last throughout 2018. Where to Find Forex News and Market Data. A quick Yahoogleing (that’s Yahoo, Google, plus Bing) search of “forex + news” or “forex + data” returns a measly 30 million results combined. 30 MILLION!

That’s right! No wonder you’re here to get some education! There’s just way too much information to try to process and way too many things to confuse any newbie forex trader. That’s some insane information overload if we’ve ever seen it. Currency price moves because of all of this information: economic reports, a new central bank chairperson, and interest rate changes. News moves fundamentals and fundamentals move currency pairs! It’s your goal to make successful trades and that becomes a lot easier when you know why price is moving that way it is. Successful forex traders weren’t born successful; they were taught or they learned. What they can do is see through the blur that is forex news and data, pick what’s important to traders at the moment, and make the right trading decisions. Where to Find Forex News and Market Data. Market news and data are available through a multitude of sources. The internet is the obvious winner in our book, as it provides a wealth of options, at the speed of light, directly to your screen, with access from almost anywhere in the world. But don’t forget about print media and the good old tube sitting in your living room or kitchen.

Individual forex traders will be amazed at the sheer number of currency-specific websites, services, and TV programming available to them. Most of them are free of charge, while you may have to pay for some of the others. Let’s go over our favorites to help you get started. Traditional Financial News Sources. While there are tons of financial news resources out there, we advise you to stick with the big names. These guys provide around-the-clock coverage of the markets, with daily updates on the big news that you need to be aware of, such as central bank announcements, economic report releases, and analysis, etc. Many of these big players also have institutional contacts that provide explanations about the current events of the day to the viewing public. Real-time Feeds. If you’re looking for more immediate access to the movements in the currency market, don’t forget about that 80-inch flat screen TV in your bathroom! Financial TV networks exist 24 hours a day, seven days a week to provide you up-to-the-minute action on all of the world’s financial markets. In the U. S., the top dogs are (in random order), Bloomberg TV, Fox Business, CNBC, MSNBC, and even CNN. You could even throw a little BBC in there. Many forex brokers include live newsfeeds directly in their software to give you easy and immediate access to events and news of the currency market. Check your broker for availability of such features not all brokers features are created equally.

Economic Calendars. Wouldn’t it be great if you could look at the current month and know exactly when the Fed is making an interest rate announcement, what rate is forecasted, what rate actually occurs , and what type of impact this change has on the currency market? It’s all possible with an economic calendar. The good ones let you look at different months and years, let you sort by currency, and let you assign your local time zone. 3:00 pm where you’re sitting isn’t necessarily 3:00 pm where we’re sitting, so make use of the time zone feature so that you’re ready for the next calendar event! Yes, economic events and data reports take place more frequently than most people can keep up with. This data has the potential to move markets in the short term and accelerate the movement of currency pairs you might be watching. Lucky for you, most economic news that’s important to forex traders is scheduled several months in advance. So which calendar do we recommend?

We look no further than our very own BabyPips. com forex economic calendar to provide all that goodness! If you don’t like ours (which we highly doubt), a simple Yahoogleing search will offer up a nice collection for you to examine. Market Information Tips. Keep in mind the timeliness of the reports you read. A lot of this stuff has already occurred and the market has already adjusted prices to take the report into account. If the market has already made its move, you might have to adjust your thinking and current strategy. Keep tabs on just how old this news is or you’ll find yourself “yesterday’s news.” You also have to be able to determine whether the forex news you’re dealing with is fact or fiction, rumor or opinion. The rumors help to produce some short-term trader action, and they can sometimes also have a lasting effect on market sentiment. Institutional traders are also often rumored to be behind large moves, but it’s hard to know the truth with a decentralized market like spot forex. There’s never a simple way of verifying the truth . Your job as a forex trader is to create a good trading plan and quickly react to such news about rumors after they’ve been proven true or false.

Having a well-rounded risk management plan, in this case, could save you some moolah! And the final tip: Know who is reporting the news. Are we talking analysts or economists, economist or the owner of the newest forex blog on the block? Maybe a central bank analyst? The more reading and watching you do of forex news and media, the more finance and currency professionals you’ll be exposed to. Are they offering merely an opinion or a stated fact based on recently released data? The more you know about the “Who”, the better off you will be in understanding how accurate the news is. Those who report the news often have their own agenda and have their own strengths and weaknesses. Get to know the people that “know”, so YOU “know”. Can you dig it? Forex Fundamentals Course. 8 On Demand Lessons PLUS 2 Months of Live Coaching AND Live Trading.

Our Forex Fundamentals Course Contains. ALL the Ingredients For Trading Successfully in One Short, Simple Battle Tested Trading Course. Improve Your Trading in Eight Simple Lessons Followed by. 2 Months OF LIVE COACHING. Kathy and Boris will Answer your Questions & TRADE the Course Strategies in LIVE Markets. In the 10+ years that we have been trading together we have survived through some of the most volatile markets in history and learned many lessons that we would like to share with you. We’ve distilled that hard won knowledge into a simple, effective online course that will show you how to use Fundamentals to Conquer the Currency Market. Most traders realize that economic and geo-political news controls currency markets – but amidst the daily deluge of data, few traders have the skill or the patience to separate the signal from the noise in order to construct intelligent, professional trades. Our course allows you to skip the tedious, trial and error approach and quickly learn what it takes to make professional currency trades. In eight short and simple lessons we will teach you what you need to know about trading fundamentals. No useless fluff.

No boring academic complexity. Just solid, practical knowledge that traders can put to their advantage in the market every single day. In addition to Fundamentals, we will show you how we develop Trading Strategies, share our latest models, and show you proper trading plans and money management techniques to give you an A to Z understanding of what it takes to trade the currency market. 3 On Demand Lessons Per Week PLUS 2 Months of LIVE COACHING and TRADING. After you’ve completed the 8 on-demand videos we will invite you to our Live Coaching sessions where we will answer questions and show you how to apply EVERYTHING we taught you online in LIVE Market conditions trading using our own REAL MONEY accounts. You’ll get to watch us put on trades in real market conditions and learn to trade FX the BK way. Here’s what you will Learn: Lesson #1 -- An Easy Guide to Understanding the Global Economy -- Macroeconomics for Traders. + What is Economics and Why Should You Care? + What are the 3 Ms of the Forex market that Drive Most Currency Movements? + How You Can Filter Daily Economic News to a Few Key Powerful Facts to Help Guide Your Trades. Lesson #2 -- The Fundamentals that REALLY Move Markets -- Everything from Central Bank Intervention to Fixings to Fair Value of Currencies. + Everything you Need to Know about High Beta (Risk) vs. Safe Haven Currencies + Learn How to take Advantage of Central Bank Interventions + Learn why Daily Fixings can Affect Your trades and What You Can Do About it. Lesson #3 -- How to Predict Economic Data Like a Wall Street Pro. + Top 10 Most Important Monthly Reports Every Currency Trader Should Know + Learn to Forecast Data just Like a Wall Street Economist + Learn which Economic Reports may predict Employment, GDP and Retail Sales reports for all the Major Currency Pairs + Learn the Edge to Anticipate News. Lesson #4 -- Peek Over Our Shoulders -- A Private Tour of Our Trading Screens + Shortcut to all the Key Resources every Currency Trader Needs at His Her Fingertips + Find out How to get Real Time Economic Data for FREE + The Best Charting Software Packages to Track the Market.

Lesson #5 -- How to Trade the EUR, USD, GBP, JPY + Why is EURUSD different from all other pairs? + How can you profit from GBPUSD volatility? + What Makes USDJPY Tick. Lesson $6 -- How to Trade the AUD, NZD, CAD, CHF. + What are the best hours to trade AUDUSD? + Why is the Canadian dollar no longer an oil play? + What single event could force the Swiss franc to break its peg? Lesson #7 -- How to Turn Economic Data into Currency Trades. + Learn how to position for big moves by trading news proactively + Learn how look for small, steady setups by trading news reactively + Learn a step-by-step news day trading system that aims for 4 out of 5 winning trades. Lesson #8 -- Proper Money Management Rules To Protect Your Account + Learn the single biggest mistake all forex traders make and how you can try to avoid it + What are the hidden risks of trading Forex and what can you do to protect yourself + How to make risk control an automatic part of every trade you place. PUTTING IT ALL TOGETHER. + How to develop a Professional Trading Plan with a Top Down Approach + How to fuse Fundamentals, Technicals and Sentiment to time the trade. + How to manage the trade for maximum profit potential.

Trading forex carries a high level of risk and may not be suitable for all investors. 3 On Demand Lessons Per Week PLUS 2 Months of LIVE COACHING and TRADING with our REAL MONEY ACCOUNT! The Forex Guide to Fundamentals, Part1: What is a Fundamental? Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to Walker England. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Fundamentals track economic changes Traders want to buy the currency with strong fundamentals Check the economic calendar for upcoming events. Trade analysis is normally grouped into two categories, Technical and Fundamental. Normally when developing a trading strategy, traders will choose one or even a combination of both forms of analysis when developing a trading plan.

While its always important to know and understand key technical levels, it is also good to know what is fundamentally driving market price. This series of articles is geared to better understating Fundamental trading, and how shifts in market data can affect market price. Today we will begin by reviewing exactly what fundamentals are and where we can find pertinent market data to make better trading decisions. What is a Fundamental. So what is a market fundamental? A market fundamental is a piece of specific data or event that causes money to flow either in or out of an underlying asset. As a trader we attempt to find the strongest currency and pair it with a weaker one. This means when trading a fundamental strategy, we will be looking for a series of data points that makes one more attractive than the other. Knowing this, traders should be factoring in things such as employment data, inflation, interest rates and even political turmoil before buying a particular currency. If the underlying fundamental data is improving or getting stronger we have found a candidate currency to buy relative to another with poor performance. So now that you are a little more familiar with what a fundamental is, now we need to find all this data so we can make an educated trading decision. Every good fundamental trader should have access to an economic calendar.

This is where we can see which data points are being released from week to week. DailyFX updates an economic calendar HERE providing insight into what day and time releases are held, along with past data and current expectations. Traders should keep an eye on the calendar at all times, as data hits or misses expectations this will ultimately change our fundamental outlook on a currency. Which Events to Track. The final question is which events we should follow. This is a fair question, because there is a slew of economic data released each week! To help make things easier, the high importance events have been marked on the economic calendar as depicted above. These are the events that our normally monitored by policy makers such as central banks and have the ability to immediately influence market price. While these events are certainly important, just watching events such as this week’s employment figures for the US may not give us an overall opinion of the market. The key to trading fundamentals is to combine a variety of data points to then make an educated trading decision. As we continue our study of fundamentals we will take a look at the main influences on an economy and how they can mold our trading opinion. Watch the Market. As a fundamental trader, it is important to know how different events affect the valuation of a currency. To follow along with the market, make sure to sign up for a Free Forex Demo account with FXCM.

This will allow you to monitor, track and trade currencies in real time. This will conclude our first look at Forex fundamentals. In our next edition, we will begin looking at capital flows and how they can affect price and our outlook on the market! ---Written by Walker England, Trading Instructor. To contact Walker, email [email protected] com . Follow me on Twitter at @WEnglandFX. To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information. New to the FX market? Save hours in figuring out w hat FOREX trading is all about. Take this free 20 minute “New to FX” course presented by DailyFX Education. In the course, you will learn about the basics of a FOREX transaction, what leverage is, and how to determine an appropriate amount of leverage for your trading. Register HERE to start your FOREX learning now! DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

The Truth about Forex Fundamentals and Trading the News. Today’s Lesson Is Very Good . This is Probably One of the Most Crucial Aspects of Trading. ” To trade the news or to trade the price action ?”. Today I share my views on this interesting topic which can often be the main reason a trader fails. I am not a fan of trading the news or fundamentals, and this article explains why. When You Finish Reading This Article, Please Remember To Click the Facebook Like Button Below & Make a Nice Comment Below or Post it To Twitter. Thanks and enjoy Today’s Lesson. Nial. Forex news and Forex fundamental variables are topics that many traders email me about each week. They usually want to know if they should pay attention to the news as it relates to their trading and (or) how to incorporate fundamental economic news variables into their trading. The fact of the matter is that as a price action trader I believe that all fundamental variables are reflected in the price action on a plain vanilla price chart. The primary reason that I believe this is because price action is the final result of all catalysts and participants in any financial market. Forex news and other fundamental variables are simply catalysts that cause markets to move, and since price action trading involves analyzing price bars on a “naked” price chart, I am primarily concerned with analyzing the end result of the news: price movement. Now, there may be some diehard economists and fundamental traders who will disagree with what I am saying here. So, let me make myself clear, I am not saying that news cannot be used or that fundamental traders can’t make money in the markets.

What I AM saying, is that the effectiveness and relevance of price action trading cannot be disputed. As price action traders we want to make our trading simple, and in order to simplify we remove the news, economists, and so-called market gurus. Let’s dissect this issue further… Over-analyzing Forex fundamental variables… Many traders over analyze the news and this ends up confusing them and causing them to second guess themselves. There are just too many variables each day as far as news and fundamentals are concerned for any individual trader to have enough time to make effective use out of them. You will literally burn your eyes out trying to read all the economic news that can influence the Forex market each day. The point being; you can bypass all of this unnecessary over-analyzing by learning to read a plain vanilla price chart. You see, fundamental news is simply a catalyst for price movement, so, it only makes sense that we trade based off the final result of all Forex and economic news; price action. We will discuss this more in-depth in the last part of this article. Also, most retail traders do not have access to the type of “in-depth” and “inside” information that would allow them to take advantage of an impending news event. Furthermore, paying to get access to “up to the minute” economic news is basically a huge waste of money. It’s only going to introduce more variables for you to over-analyze and take your focus off the price action of the market. Why trying to predict price movement based on the news is like gambling…

You cannot predict what the market will do based on the news. The market often reacts counter to what you would expect based on a particular news release because of the issue of “buying the rumor selling the fact”. Markets operate on traders’ investors’ expectations of the future, so when a news event actually happens, price will often move in the opposite direction to what the implication of the news event might be. This is because traders have traded their expectations already, and so once the news is out there is nothing left to expect from that particular piece of news. The bottom line is that you never really know how the market will react to any particular news event, and trying to guess what the market will do based on some economic news release is not a definable or effective edge, it’s basically a blind gamble. Once you learn how to identify and trade a handful of simple yet high-probability price action trading strategies, you will have an effective trading edge that you can use to achieve success in the markets over a period of time. What you DO need to know about Forex news… While we do not need to know everything about all the fundamental forces that cause price to move, it is good to know what the most volatile economic news releases are and when they are released. This is because if you are in a profitable trade, you do not want to lose that profit or have it turn into a loss because the market became “spooked” or surprised about a particular piece of news. We call this a “knee-jerk” reaction, and sometimes these reactions can be very quick and very significant.

So, it’s good to know when the most volatile news releases are coming out so that if you are up with a risk reward of over 1:2, you can lock in that profit or you may simply want to move to breakeven. This is part of Forex trade management, and we need to be good managers of our trades because our number one goal is to protect our capital, and we don’t want winners turning into losers. • What news events are most volatile? The following economic news releases are generally the most important for any country. Depending on the current state of the economy, the relative importance of these releases may change; therefore, they are not in order of significance here (they are actually in alphabetical order). For example, unemployment may be more important this month than inflation or interest rate decisions. 1. Business sentiment surveys 2. Consumer confidence surveys 3. Gross Domestic Product (GDP) 4. Industrial production 5. Inflation (consumer price or producer price) 6. Interest rate decision 7. Manufacturing sector surveys 8. Retail sales 9. Trade balance 10. Employment Unemployment (Non-Farm Payrolls) As price action traders we only want to know that there is volatility coming, we don’t ever want or need to “guess” what will happen based on some piece of economic news. To learn more about these economic news events check out this article: Major Economics Events in Forex Trading, and to see the upcoming volatile news events for the next 24 hours, you can always check out my daily Forex market commentary, just scroll down to the bottom where it says “upcoming important economic announcements”. My final thoughts on Forex news and fundamental variables… Global economic variables are the catalysts that cause all financial markets to move. However, it is not the actual news events themselves that we should be concerned with, instead we need to be concerned with the final result of economic news events; price movement. The easiest and most effective way to trade the Forex market is by learning to take advantage of simple, effective, and repetitive price action patterns that form in the markets as the end result of these global economic price catalysts. To become too concerned with Forex news and fundamental variables is not being able to see the forest for the trees. The “forest” of the Forex market can be seen by looking at a daily price chart; this shows you the most up to date and relevant picture of the market.

You can easily get lost in this forest by spending too much time analyzing the “trees”, such as all the different news events that come out each day. If you want to learn how to profit consistently in the market, you need to know what you are looking for. Learning to trade with price action strategies can give you the edge you need, so that you know what you are looking for every single time you check your charts. Forex news has its place as a catalyst that causes price to move. But, if you don’t understand how to read the natural price action on a plain vanilla price chart, all the time-consuming fundamental analysis in the world will not mean a thing. The Fundamentals Of Forex Fundamentals. Those trading 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: 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. Economic Indicators Economic indicators are reports released by the government or a private organization that detail a country's economic performance.

Economic reports are the means by which a country's economic health is directly measured, but remember that a great deal of factors and policies will affect a nation's economic performance. These reports are released at scheduled times, providing the market with an indication of whether a nation's economy has improved or declined. These reports' effects are comparable to how earnings reports, SEC filings and other releases may affect securities. In forex, as in the stock market, any deviation from the norm can cause large price and volume movements. You may recognize some of these economic reports, such as the unemployment numbers, which are well publicized. Others, like housing stats, receive less coverage. However, each indicator serves a particular purpose and can be useful. Here we outline four major reports, some of which are comparable to particular fundamental indicators used by equity investors: Gross Domestic Product (GDP) GDP is considered the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility. The GDP is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth. Retail Sales The retail-sales report measures the total receipts of all retail stores in a given country.

This measurement is derived from a diverse sample of retail stores throughout a nation. The report is particularly useful as a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales can cause significant volatility. The retail sales report can be compared to the sales activity of a publicly traded company. Industrial Production This report shows change in the production of factories, mines and utilities within a nation. It also reports their "capacity utilizations," the degree to which each factory's capacity is being used. It is ideal for a nation to see a production increase while being at its maximum or near maximum capacity utilization. Traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utilities industry, and in turn the trading of and demand for energy, is heavily affected by changes in weather. Significant revisions between reports can be caused by weather changes, which in turn can cause volatility in the nation's currency. Consumer Price Index (CPI) The CPI measures change in the prices of consumer goods across over 200 different categories. This report, when compared to a nation's exports, can be used to see if a country is making or losing money on its products and services. Be careful, however, to monitor the exports - it is a popular focus with many traders, because the prices of exports often change relative to a currency's strength or weakness.

Other major indicators include the purchasing managers index (PMI), producer price index (PPI), durable goods report, employment cost index (ECI) and housing starts. And don't forget the many privately issued reports, the most famous of which is the Michigan Consumer Confidence Survey. All of these provide a valuable resource to traders if used properly. So, How Are These Used? Since economic indicators gauge a country's economic state, changes in the conditions reported will therefore directly affect the price and volume of a country's currency. It is important to keep in mind, however, that the indicators discussed above are not the only things that affect a currency's price. Third-party reports, technical factors and many other things also can drastically affect a currency's valuation. Here are some useful tips that may help you when conducting fundamental analysis in the forex market: Keep an economic calendar on hand that lists the indicators and when they are due to be released. Also, keep an eye on the future; often markets will move in anticipation of a certain indicator or report due to be released at a later time. Be informed about the economic indicators that are capturing most of the market's attention at any given time. Such indicators are catalysts for the largest price and volume movements.

For example, when the U. S. dollar is weak, inflation is often one of the most-watched indicators. Know the market expectations for the data, and then pay attention to whether the expectations are met. That is far more important than the data itself. Occasionally, there is a drastic difference between the expectations and actual results. If so, be aware of the possible justifications for this difference. Don't react too quickly to the news. Often numbers are released and then revised, and things can change quickly. Pay attention to these revisions, as they may be a useful tool for seeing the trends and reacting more accurately to future reports. The Bottom Line There are many economic indicators, and even more private reports, that can be used to evaluate forex fundamentals. It's important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation's economy. When properly used, these indicators can be an invaluable resource for any currency trader. How Fundamentals Move Prices in the FX Market. by James Stanley , Currency Strategist. Price action and Macro. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest.

Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to James Stanley. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Fundamental Analysis in the Currency markets centers around Macroeconomic data Macroeconomic analysis can be simplified by focusing on interest rates (and expectations) Traders can incorporate Price Action to make analysis even more simplistic. Fundamental Analysis in the stock market involves analyzing the inputs of a company in an effort to forecast future growth potential. For an individual company, this can be a very logical way to look for investment ideas.

Fundamental Analysis of a company would involve investigating that company’s financial statements, to notice changes from one year to the next; or perhaps looking that the management of that company, and their track record in order to determine how successful they might be towards accomplishing their goals. In the Forex market, many of those statistics don’t exist, and we’re trading entire economies against one another. In each of these economies, thousands of companies exist trying to maximize their profit potential, so the analysis of a single company’s management structure or market share doesn’t really mean a whole lot. Due to the nature of the market, many traders refer to technical analysis, and we showed you how fundamental data events can be traded with technical analysis in the article The Potent Combination of Fundamentals and Price Action. In this article, we’re going to go in-depth behind how fundamentals impact prices in the FX market. Why Currency Values Matter. Currency prices matter because of cross-border trade. We investigated this concept in-depth in The Nucleus of the FX Market . In the article, we saw how the nation of Japan was absolutely ravaged by a strong yen; as a stronger yen meant lower profits and margins for Japanese exporters. The concept of Fundamental Analysis in the Forex Market can be all boiled down to one simple data point: Interest Rates. If interest rates move higher, investors have a greater incentive to invest their capital; and if interest rates move lower, that incentive is lessened. This relationship is at the heart and soul of macroeconomics; and this is what allows Central Bankers to have tools to steward their respective economies. The decision to increase or decrease rates can bring impact to other economies as well. Let’s say, for instance, that you are an American with cash to invest.

After having little incentive and extremely low rates for a long time, you notice that The United Kingdom increases rates 25 basis points. This increase in interest rates from the Bank of England can and should bring higher rates in other issues from The United Kingdom; so you may not necessarily buy Gilts or a government bond, but investors can now look to invest in England to get that higher rate of return. Additional investors thinking the same thing rush into UK bonds, and eventually – the price of the British Pound will go up to reflect this additional demand. Now it becomes slightly more difficult for the UK to export goods (similar to the problem Japan faced in The Nucleus of the FX Market ). A great example of this was in Australia from 2002 leading up to the Financial Collapse; as insatiable demand from China drove growth throughout Australia, unemployment got very low and inflation moved very high. The Reserve Bank of Australia (RBA) moved to increase interest rates, and currency prices followed. The Aussie more than doubled while RBA moved rates from 4.25% to 6.75% Created with MarketscopeTrading Station II. This is an interest rate cycle, and it drives capital flows that are at the heart of the FX market. How Interest Rate Cycles Drive Economies. It all goes back to the incentive to invest. If Central Bankers want to slow down their economy, they look to raise rates. If they want to encourage more growth within an economy, they look to decrease rates. Higher or lower rates bring a two-pronged impact on the economy. The first and most obvious impact is the incentive to invest. If rates increase, that incentive to invest also increases; and if rates decrease, so does the incentive to lock up one’s money. The second impact is what this does for capital expenditures.

If rates decrease, the attractiveness of locking up a long-term loan at the new lower rate is much higher than it was previously. The incentive to buy big-ticket items like homes, and cars is now higher. And when you buy a home or a car, the homebuilder or car maker has to turn around to pay for their materials and workers. If the lower rates increase the number of homes or cars that are being purchased, this amounts to growth. Homebuilders and car makers will eventually have to hire new workers to keep up with the demand; and as demand for workers increases, so will the wages that are needed to attract qualified candidates. This is how lower interest rates can bring higher employment and inflation (often shown as CPI or ‘Consumer Price Index’); and it’s at this point that Central Bankers are going to investigate increasing rates in an effort to prevent the economy from over-heating. If interest rates stay low, the effects of ‘over-heating’ could be immense. Prices can continue inflating, and if left unchecked – could bring hyperinflation. Imagine going to the store to buy a gallon of milk and seeing the price at 27 dollars. I don’t know about you, but I’d freak out at seeing something like this. Then my mind would wander to other areas where costs might be increasing. If a gallon of milk is 27 dollars, then how much will that new car cost me? How much is milk going to cost tomorrow?

So, Central Banks want a moderate rate of inflation. This helps to keep growth within an economy; people get pay increases, more people are working and paying taxes, and consumers have the confidence that they can save their money for tomorrow because prices won’t increase a hundred-fold overnight. What do Central Bankers Watch? Both Central Bankers and Forex Traders watch macroeconomic data prints with the goal of getting something out of them; but their objectives are slightly different. FX Traders are often interested in the price reaction of a data print. If CPI comes out higher than expected, then traders may be looking for long positions to move higher. FX Traders can price in new data quickly, creating volatile price movements. Created with MarketscopeTrading Station II. Central Bankers, however, take a much more broad view on such statistics. Central Bankers want to watch the primary points of reference for an economy in an effort to make the correct decision as to where to move rates. Inflation and employment are chief amongst these statistics, as these are two of the primary pressure points within an economy. If unemployment is high, the economy will likely struggle.

As employmentunemployment prints are released out of an economy, this new information is factored in fairly quickly. FX Traders will begin pricing this in with the probability of an eventual rate hike or cut by Central Bankers to factor this information in. Same for inflation: As inflation (CPI) data prints are released in an economy, traders will act quickly to incorporate this new information in to prices. Meanwhile, Central Bankers are watching cautiously to decide if they want to do anything at their next meeting. Increasing unemployment (decreasing employment) along with decreasing inflation are threats to an economy that will usually see Central Bankers investigate rate cuts. Decreasing unemployment (increasing employment), and increasing inflation are signs of a growing economy, and this is when Central bankers will look at potential rate hikes. But, Central Bankers and Forex traders alike are not happy to just sit around and wait for employment or inflation numbers to show changes within an economy. This has brought to light numerous additional data prints that traders and investors will look to in an effort to anticipate changes to inflation, unemployment and interest rates. Consumer statistics are extremely important in large economies like The United States, or Europe in which consumer activity has a heightened level of importance for the global economy. In the article, The Lifeblood of the US Economy , we looked at the major data releases that include this information. The Euro can get extremely volatile around releases of Consumer Sentiment Numbers, and this is because consumer activity in established economies is often looked at as a precursor to inflation, employment, and growth. GDP, or Gross Domestic Product, is a direct expression of growth (or contraction) within an economy, and this can also be a huge precursor to price movements; especially if the announced rate of growth is far away from expectations. But, in and of itself, increases or decreases in GDP don’t bring more jobs or higher inflation, so this is often looked at as more of a ‘lagging’ fundamental indicator. Production numbers can be especially important in growing economies that are at a very industrialized stage of the growth process.

China is a phenomenal example; as each months ‘PMI’ (Purchasing Managers Index), will draw massive interest from numerous parties around the globe. PMI is a survey that’s recorded from producers gauging their sentiment on future orders. The thought behind this statistic is that if producers are seeing growth, then that growth will eventually cycle through to consumers; after all, if someone wants to buy a good, it has to be produced in the first place, right? Warning: Beware Of Trading Forex News And Fundamentals. In case you’ve been living under a rock for the last 50 years, you know this blog is about price action trading. However, what you might not know is that I pay little to no attention to Forex news and fundamentals. In fact, I believe that focusing too much on Forex news and fundamental variables has a negative effect on a trader’s performance. It is my belief that price is the ultimate “indicator” and that it reflects every variable that affects a market. I know that many of you try reading numerous Forex news articles to “figure out” what price is likely to do next, or even try to “trade the news” each week, I know this because I get emails about it every day. So, in today’s lesson, I am going to explain to you why you are wasting your time when you follow the news too closely, and why you should stop this counter-productive habit right now. “Buy the rumor, sell the fact” There’s a reason why the saying “Buy the rumor, sell the fact” has been around on Wall Street for over a hundred years. Generally speaking, the reason is because the big players in the markets; the guys who REALLY make the market move, mainly trade based on their expectations of the future, NOT so much on facts that have just been released. Thus, upcoming economic news releases are almost always factored into the price of a market. If this month’s Non-Farm payrolls report is expected to show that 200,000 jobs were added last month, then traders are currently trading the EXPECTATION of 200,000 new jobs and their beliefs on how THAT EXPECTATION will affect a particular market. Now, unless you are an illegal insider-trader, you won’t have access to the actual jobs number until after it’s released. What’s the point you ask? Well, in short, the actual economic number is almost totally irrelevant. Why? Well, because by the time the number is released, all the big boys have already traded their beliefs of how the expected number will affect the market.

For example, if our 200,000 Non-farm payroll number comes in at exactly 200,000 it could actually make the market go down, because everyone already bought into the market with an expectation of 200,000 jobs or more being a positive sign. So, if the number comes out at 200,000 exactly, no one with any clout is going to want to buy anymore because the number didn’t “surprise to the upside”, as the market analysts like to put it. I am trying to explain to you guys that trading Forex news releases is essentially the same as gambling your money in the market. You never know how the market is going to react to any particular news release, and you can’t trade based off the logical thinking that “a positive number on the economy will make the market go up and a negative number will make it go down”…because everything is usually factored in by the time the number comes out! That’s why beginning traders and traders who focus too much on news find themselves getting chopped up every time they try to trade the news. In short, it’s a futile game that seems logical on the surface but really is nothing more than a roll of the dice at the casino. It’s all in the price. As a price action trader, I believe that all fundamentals and Forex news releases are reflected and can be traded via the price action on a plain vanilla price chart. The main reason why I believe this is because news events and other variables are nothing more than catalysts that cause the market to move. But, HOW the market ultimately moves as a result of them is a different story, and this story is ultimately reflected via the price movement on a price chart.

Thus, I am not concerned with the thousands of news events that can affect a market each week, because I know the biggest “short-cut” to reading and trading a market is by learning to read and trade its price action. Price action is essentially its own language, and this language can be thought of as a reflection of what every market variable has caused the market to do, as well as which direction the market is most likely to move next. Sometimes, these reflections result in repetitive price action patterns that are high-probability predictive tools that can be used to gauge the future direction of a market, in this way, price action is actually the most accurate “leading indicator” in existence. So, it’s really quite simple; when you learn to read the market and trade it based off simple price action strategies, you are trading off of all fundamental variables via their representation in price action form on a price chart. The psychological trap of believing that “more is always better” More is not always better, and especially as it relates to analyzing forex news and economic data. You see, there is simply so much economic information available everyday on the internet that you can’t possibly make use of it all. It’s a proven fact that traders who trade more often make about 13 less money over the long run than traders who trade less often. In other professions, “more” IS usually better, but because trading is mostly dependent on you being objective, disciplined, and trading with patience…analyzing increasing amounts of economic news variables will likely decrease your chances at achieving success as a trader because you will be over-analyzing, over-thinking, and as a result, over-trading. Fundamental analysis is not a complete waste of time. Now, I’m sure I will get some flack over this article from some diehard fundamental traders who are totally brain-washed that they can predict what the market will do next from their $400 a month news service subscription (after all you don’t want to admit you are blowing $400 a month for nothing). So, let me be clear, I am not saying that Forex news and fundamentals are not useful or that it’s impossible to make money by following them.

But, what I AM saying is that you do not NEED them, and in my humble opinion they usually work to confuse and complicate a trader’s mindset. The effectiveness and practicality of trading solely off the price action of a market cannot be ignored. My goal as a trader and a trading mentor so to trade in a simple and clean manner, without confusing and contradictory news variables, economists, or market analysts telling me why the “euro is certainly going to fall off a cliff because Greece had a poor bond sale”… that crap just doesn’t matter to me because I choose to trade the price action depiction of the news variables, rather than some analyst’s interpretation of what they MIGHT do to the market. However, I do need to mention how news releases can affect open trades…because I literally get emails about this everyday. So, for all of you wondering, here is my official statement on what to do with open trades prior to big news releases like Non-Farm payrolls or GDP… If I am in a trade and up 2 times my risk or more and a big report like NFP is about to come out, 9 times out of 10 I am locking in that 2 times risk reward and letting the market due it’s “thing”. If I am in a trade that’s hovering near breakeven prior to NFP or GDP or ABC (ABC is not really a news release, that was supposed to be a joke)…I will usually keep the trade open and either take the knee-jerk reaction stop-out at my pre-determined stop loss level, or I will sit back and watch my trade rocket off in my favor and likely close out the position for a large gain shortly thereafter, or keep it open and trail my stop at my discretion. Now, if I am not in a trade about 24 horus prior to a big volatile news release, I will generally wait to enter the market until after the release. If you want to know which news releases are “big and volatile”, check out the section on fundamental analysis in my beginner’s forex trading course. What will you do now? Now that you know why trying to trade the news or even concentrating on it too much can actually hurt your trading, what will you do? The ball is in your court.

Are you ready to accept that trading off the news is irrational and pointless? Or are you going to hang on to your old news-trading habit and continue to try and “figure out” what is going to happen next? The truth is that you can never figure out what will happen next, all you can is trade the market with a high-probability trading edge and make sure your winning trades out-pace your losers, as well as not over-trade or over-leverage your account. Trading the market without any news variables influencing your decisions takes a huge amount of pressure and confusion off your shoulders. You don’t have to sit there biting your nails before Non-Farm Payrolls comes out anymore, and you don’t have to stay up all night reading some analyst’s forecast for the euro. Less information to digest means less confusion and the elimination of analysis-paralysis, A. K.A chasing your tail around in circles trying to “figure” shit out that simply can’t be “figured out”. I teach my students how to read and trade based off the “pure” price action of the markets. I really feel that people who incorporate news and other fundamental variables into their trading decisions are “polluting” the raw and pristine “waters” of the market. Part of my core trading philosophy is to use the natural price action of a market to anticipate what the market is most likely to do next…not to “figure it out”. I know I can never know 100% for sure what is going to happen next in the market, however, after 11 years of trading it’s my belief that we can use price action to trade the market with a high-probability edge. Price action is the all-encompassing “key” to reading a market; it reflects all fundamental variables and gives us an effective and simple way to make use of them. Thus, we need to “listen” to a market’s price action because it is truly the heartbeat of a market and shows the hands of all market participants at any point time; we cannot ignore this fact. So, if you’re ready to shed the confusion and contradictory nature of Forex news and fundamental variables, check out my Forex Price Action Strategies Trading Course to learn more.


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