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Forex Market Analysis For A Beginner

Forex market analysis is the process of considering which currency within a pair is likely to go stronger over a particular period of time. Forex traders can then use this knowledge to buy the currency that they expect to appreciate in value, or to sell the currency they think will decline in value. To help make these predictions, forex traders will study a range of sources. These include fundamental factors, such as the state of the nations’ economies, the price of relevant assets such as oil, or any major news events affecting international economics. Technical factors are also considered, such as the recent price history of the currency relative to its historical averages.

File Photo: US Dollar Bills and Coins

Fundamental Analysis

Traders who use fundamental analysis may look at factors such as the interest rate and inflation outlook for the currencies of the pair they intend to buy or sell. They will also look at factors such as employment, which may provide insight into future interest rate trends. A strong economy will tend to push interest rates up, attracting more investors into that currency and into that market to benefit from the higher interest rates. For example, because the Canadian dollar tends to move with the price of oil, traders may also factor in expectations about the future direction of oil prices.

Technical Analysis

To simply put it, technical analysis focuses on the structure of a currency chart. Technical analysts, meanwhile, might look for trends and ranges within the price history of a pair. A trend will provide the overall direction the currency pair is moving, while ranges may indicate areas of support or resistance the price is approaching. They may also use technical indicators in an attempt to find a rhythm or pattern in the price movements. By charting these patterns, analysts can try to anticipate how the price will move within the pattern, and predict when it will break out of its historical range.

However, in practice, traders tend to focus on both  and technical analysis. Meanwhile, other traders may focus on a single form of analysis. It is all about recognizing what works for you.

Learn how you may be able to profit from forex trading using the best form of analysis.

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