The Long and Short of Fundamental Analysis

Mom always said to look both ways before crossing the street. This advice still holds true, even in the financial markets. There are two prime schools of thought when studying the art of trading Forex: Fundamental Analysis and Technical Analysis. This chapter will focus on the fundamental side of trading or what we consider the side that strengthens our opinion to go long or short. As we get into the technical side in the later chapters we will focus on what technical indicators do best, which is to help timing.

Fundamental analysts use economic data, government policy, and more importantly Federal Reserve Policy when trying to forecast future price movements in a specific currency pair. There are many important fundamental events each month, but the two most important that receive the most attention and press are the key Federal Open Market Committee (FOMC) interest-rate policy-decision meetings that occur eight times per year and the employment data that is released the first Friday of every month. These reports create bulls and bears to react on the strength or weakness of the report as each currency pair adjusts to where the data suggests prices will land. Typically most of the Forex software used to enter and exit trades provides a real-time news feed that alerts you with the figures at the key times these reports are released. Watching market news networks like CNN, CNBC, or the Bloomberg channel to name a few will provide ...

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