FUNDAMENTAL ANALYSIS

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Fundamental analysis focuses on the economic, social, and political forces
that drive supply and demand. Those using fundamental analysis as a trading
tool look at various macroeconomic indicators such as growth rates,
interest rates, inflation, and unemployment. We list the most important economic
releases in Chapter 12 as well as the most market-moving pieces of
data for the U.S. dollar in Chapter 4. Fundamental analysts will combine
all of this information to assess current and future performance. This requires
a great deal of work and thorough analysis, as there is no single set
of beliefs that guides fundamental analysis. Traders employing fundamental
analysis need to continually keep abreast of news and announcements
that can indicate potential changes to the economic, social, and political
environment. All traders should have some awareness of the broad economic
conditions before placing trades. This is especially important for day
traders who are trying to make trading decisions based on news events because
even though Federal Reserve monetary policy decisions are always
important, if the rate move is already completely priced into the market,
then the actual reaction in the EUR/USD, say, could be nominal.