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Fundamental Analysis Fundamental Analysis Fundamental

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					Fundamental Analysis

Fundamental analysis is a way of looking at the market by analyzing
economic, social, and political forces that affects the supply and demand
of an asset. If you think about it, this makes a whole lot of sense! Just
like in your Economics 101 class, it is supply and demand that determines
price.

Using supply and demand as an indicator of where price could be headed is
easy. The hard part is analyzing all the factors that affect supply and
demand.

In other words, you have to look at different factors to determine whose
economy is rockin' like a Taylor Swift song, and whose economy sucks. You
have to understand the reasons of why and how certain events like an
increase in unemployment affect a country's economy, and ultimately, the
level of demand for its currency.

The idea behind this type of analysis is that if a country's current or
future economic outlook is good, their currency should strengthen. The
better shape a country's economy is, the more foreign businesses and
investors will invest in that country. This results in the need to
purchase that country's currency to obtain those assets.

In a nutshell, this is what fundamental analysis is:



For example, let's say that the U.S. dollar has been gaining strength
because the U.S. economy is improving. As the economy gets better,
raising interest rates may be needed to control growth and inflation.

Higher interest rates make dollar-denominated financial assets more
attractive. In order to get their hands on these lovely assets, traders
and investors have to buy some greenbacks first. As a result, the value
of the dollar will increase.




Later on in the course, you will learn which economic data drives
currency prices, and why they do so. You will know who the Fed Chairman
is and how retail sales data reflects the economy. You'll be spitting out
interest rates like baseball statistics.

But that's for another lesson for another time. For now, just know that
the fundamental analysis is a way of analyzing a currency through the
strength or weakness of that country's economy. It's going to be awesome,
we promise!



Read more: http://www.babypips.com/school/fundamental-
analysis.html#ixzz1Z00ltkGd

				
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