Fundamental analysis is the study of the economic situation of a nation in order to make accurate valuations of the nation’s currency. Fundamental analysis depends heavily on economic indicators, news reports, speeches and other public data. Fundamental analysis is the opposite of technical analysis, which depends primarily on price action and charting. By following the economic health of countries and keeping up on events, fundamental traders hope to profit from longer term trends and shifts in the currency market.
For example, a trader using fundamental analysis may use the announcements of the Federal Reserve Chairman as an indicator on the direction of U.S. interest rates. Based on the announcement, a fundamental trader may take up a long or short position in the USD or look for other currency pairs that will have predictable reactions to an interest rate shift in the USD.Fundamental analysis and technical analysis are not mutually exclusive. Traders can choose to use one or the other, or use a combination of both.
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