Forex Fundamental Analysis Overview

Fundamental analysis in forex focuses on what drives currency values: economic strength, interest rates, inflation, and central bank policy. Stronger economies and higher interest rates tend to attract capital and strengthen the currency. Unlike technical analysis, fundamentals look at the 'why' behind price moves.

Four main drivers: 1) Economic data—GDP, employment (NFP), inflation (CPI) show economic health. 2) Interest rates—higher rates attract capital; central banks set them. 3) Central bank policy—Fed, ECB, BoJ decisions move markets. 4) News and geopolitics—surprises cause volatility.

Technical analysis uses charts and patterns; fundamentals use economic data. Both matter. Fundamentals set the big picture (trend direction); technicals help time entries. Many traders combine both: trade in the direction of fundamentals, use technicals for entries and exits.

Check an economic calendar for key releases. Understand which data matters for each currency. Before trading, know the interest rate differential and upcoming central bank meetings. Use fundamentals to avoid fighting the trend—e.g. don't short a currency when its economy is strengthening and rates are rising.