Get to know Fundalmental Analysis in Forex Trading

Fundamental analysis cannot be separated from any type of trading . This includes forex or foreign exchange trading. As explained in the previous article, trading fundamental analysis is not only done for one asset but also for other assets. Call it forex which we will discuss in this article. For you traders, you must understand what the term forex is . As the name implies, forex or foreign exchange is a form of trading that exchanges currency between one country and another. Of course you can guess, the fundamental aspect offorex certainly does not go far with the value of a country's currency which is influenced by aspects of domestic politics, economic conditions of a country and others.

Confused…? So, don't worry because here you will learn in more detail about fundamental analysis in forex trading . Read carefully the article this time, okay :).

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Understanding Fundamental Analysis in Forex Trading

Fundamental analysis carried out in forex trading has a focus on the state of the economy of a country as a whole. The purpose of fundamental analysis in forex trading is to examine various factors that can influence forex trading activities . Fundamental analysis in forex trading is usually used to examine developments that occur in interest rates, gross domestic product or GDP, international trading and manufacturing, and employment. The results of the fundamental analysis will also affect the values ​​of the national currency.

In other words, fundamental analysis is a tool or method used to analyze money markets with the aim of estimating prices of various financial market products. This is based on the many types of assets with different values ​​​​in the money market. It should be understood that this fundamental analysis is not just comparing economic data from one indicator to another. There is a lot of data that needs to be looked at and fundamental analysis is carried out in order to find the alignment of each data that is present. Later analysis of the data can be used to predict a movement in currency values. These data include inflation, interest rates, and other local economic factors.

Important Factors in Fundamental Analysis in Forex Trading

As a forex trader , understanding and understanding fundamental analysis is a very important thing to do. One of the benefits that can be obtained in understanding fundamental analysis is the ability or expertise in understanding global trends in currencies related to the movement or economic dynamics of one or many countries. Therefore, fundamental analysis is usually carried out by forex investors who want to make long-term investments, because the analysis carried out refers to the country's economic development of the foreign currency, not just looking at market movements.

The following are the factors that influence fundamental analysis in assessing investment asset prices:

State Economic Factors

The movement of the value of a currency is quite large influenced by developments or economic policies being implemented by a government. Using fundamental analysis, the economic policies that are issued can later have an estimate of good or bad results that can affect economic development. If it feels bad, of course, gradually, the economic policy will have an impact on weakening the value of the currency. Vice versa, the value of the currency will strengthen if the policy can have good conclusions for the country's economic development.

To carry out a fundamental analysis from an economic standpoint, an investor must be able to carefully and carefully read reports on a country's economic data released by related parties or agencies from that country, such as the Central Bureau of Statistics and central banks, such as Bank Indonesia.

Social and political factors

Outside of the economic, social and political factors are also considered capable of influencing the value of a country's currency. Therefore, an investor also needs to carry out a fundamental analysis from a social and political perspective. If the social and political conditions of a country experience changes or movements that are considered quite massive, the currency value of that country has the opportunity to change significantly. One common example that can affect a currency's value is election activity, especially presidential elections.

Both in Indonesia and other countries, election contestation is often one of the triggers for currencies to fluctuate. During these activities, it will be difficult for investors to determine the exact value. However, with fundamental analysis, an investor is expected to be able to guess the stable value of a currency in the long term.

External factors

Economic, social and political factors are common factors for fundamental analysis to find the exact value of a country's currency movements. But there are also external factors that can affect this value. In understanding currency movements generated by these external factors, an  investor  needs to have expertise in conducting fundamental analysis. The reason is, this external factor is considered a surprising factor so that it can present significant fluctuations in currency values ​​as well.

So, fundamental analysis needs to be done in order to find out when the movement in the value of the currency can return to normal in the near future.

Forex Trading Fundamental Analysis Indicator

Fundamental analysis carried out by  traders  usually takes into account economic factors, because most of these economic factors have been scheduled and the news comes out periodically. Meanwhile, socio-political and external factors are imperfect. Outlines.

Several indicators of economic data that affect the strength or weakness of a currency are:

Interest Rates ( Interest Rate )

Is the change in the amount of interest rates on deposits between banks. The  forex market will generally react to interest rates and inflation rates. If the inflation rate rises, the central bank will be forced to raise interest rates to reduce consumption. Therefore, there will be less money in circulation because people will save their money in banks.

The purpose of the Central Bank to increase its own interest rate is to attract funds from the public, and it is hoped that the small amount of money in circulation will increase the value of the currency. conversely, if the central bank lowers deposit rates, then the exchange rate of the currency concerned will weaken.

Gross Domestic Product (GDP)

Gross Domestic Product  is economic data that serves to determine the total value of a country's production produced by individuals and companies, both local and foreign. Gross Domestic Product  is the total state income. The main components of  Gross Domestic Product  consist of the level of investment, consumption, government spending and total net exports.

Cost of living index

The cost of living index  is an economic indicator that measures the cost of living and the average rate of change in consumer prices for certain goods and services. This data serves to identify the inflation rate that affects the amount of bonds and interest rates. Rising CPI causes inflation to increase which will encourage the government to lower bond rates and raise interest rates.

Non Farm Payroll

Non-farm payroll  is American economic data in the form of salary data for workers outside the agricultural sector, as a contributor to  Gross Domestic Product data. If the non-agricultural salary data increases, it will affect the strengthening of the currency.

Unemployment Rate

The unemployment rate  is an economic indicator that shows data on job seekers who have not found work or are still unemployed. This data shows whether a country's economy is healthy or not. If the unemployment rate increases, it is concluded that economic growth is slowing down, as a result the currency is weakening. conversely, if the unemployment rate decreases, economic growth increases, and the currency strengthens.

Consumer Confidence Index

The consumer confidence index  is economic data that shows the level of consumer confidence in the national economy and the level of financial soundness. If the level of consumer confidence increases then the currency also strengthens.

Conclusion Fundamental Analysis in Forex Trading

Still in the discussion of fundamental analysis, aspects of this analysis cannot be ignored by traders . Aspects of the economic fundamentals of a country, the level of interest rates set and the level of public welfare are the determining factors for the value of a country's currency. Forex is a type of trading that is suitable for a longer period of time, therefore, fundamental analysis is one of the analyzes that traders must understand.