Fundamental Analysis

Fundamental analysis, when applied to Forex, involves studying the economy of a country to determine the effect it has on the value of its currency. Understanding the relationship between an economy and its currency value can allow a trader to determine, to a degree, the demand and a likely increase/decrease in value for a particular currency. This can give a trader an advantage, because he or she can estimate whether a currency pair is likely to rise or fall.

Given the impact economic indicators can have on exchange rates it is important to know beforehand when they are due for release. It is also likely that exchange rate spreads will widen during the time leading up to the release of an important economic indicator and such widening could affect the actual cost of your trade.