What is Fundamental Analysis?
Analysis of economic data, central bank policy, and macro events to predict currency movements — the macro complement to technical analysis.
Fundamental analysis (FA) in forex evaluates economic and political factors driving currency value: interest rate differentials, GDP growth, inflation, employment, central bank policy, and geopolitical events. The thesis is that exchange rates ultimately reflect the relative economic strength of two countries.
The most market-moving fundamentals: central bank policy decisions (Fed FOMC, ECB, BoE, BoJ), Non-Farm Payrolls (NFP — first Friday monthly), CPI inflation prints, GDP releases, retail sales, and unexpected geopolitical shocks. Each can move major pairs 100-300 pips within minutes.
Most retail traders combine FA + TA: FA defines direction over weeks-to-months (which currencies to be long/short fundamentally) while TA times entries (where to enter, where to place stop). Pure technical traders ignore FA at their peril during high-impact events — being long EURUSD into an unexpectedly hawkish Fed announcement can erase weeks of gains in minutes.