Fundamental analysis

Fundamental analysis is also one of the main methods of market analysis, which aims to determine market conditions by analyzing factors that may affect asset supply and demand, such as economy, society, and politics.

If you value fundamental analysis, it will have great guiding significance for your trading. The reason is simple: prices are determined by supply and demand.

The method of using supply and demand as an indicator to judge price trends is simple, but the difficulty lies in analyzing all factors that affect supply and demand.

In other words, you have to determine which economy has strong fundamentals and which economy has poor fundamentals. You need to understand why an increase in data such as unemployment rates can affect a country's economy and how it can ultimately affect the market's demand for that country's currency.

The idea of fundamental analysis is that if a country's current or future economic prospects are good, its currency should remain strong. The better the economic fundamentals of a country, the more overseas enterprises and investors invest in the country, and the stronger the demand to use the country's currency to acquire its assets.

The following diagram uses the simplest method to tell us what fundamental analysis is:

For example, as the US economy is improving, the US dollar is continuing to strengthen. As the US economy improves, the Federal Reserve may need to raise interest rates to control rapid economic growth and inflation.

An increase in interest ratesThis will make assets denominated in US dollars more attractive. In order to acquire assets denominated in US dollars, investors first need to purchase US dollars. The result is a strengthening of the value of the US dollar.

In the following courses, you will learn which economic indicators can affect the price of currency, and why they can affect the price of currency. We will also unveil the mystery of the Federal Reserve and tell you how retail sales data reflects economic conditions.

But this is something we need to spend specialized courses learning. Now, we just need to understand that fundamental analysis is to judge the trend of a country's currency by analyzing the strength of its economic fundamentals. Fundamental analysis will be very interesting, we guarantee it!