Fundamental analysis is a method of analysing financial markets by studying the real-world factors that influence price.
Instead of focusing on charts, it looks at economic data, political events, central bank actions, and global news to understand why prices move.
In simple terms:
Technical analysis tells you when to trade.
Fundamental analysis tells you why the market is moving.
1. Why Fundamental Analysis Matters
Prices don’t move randomly. They move because of:
- Economic strength or weakness
- Interest rate decisions
- Inflation levels
- Employment data
- Political stability or uncertainty
- Global crises and major news events
Fundamental analysis helps traders:
- Understand long-term trends
- Anticipate big market moves
- Avoid trading against strong economic forces
- Trade high-impact news confidently
2. Fundamental Analysis vs Technical Analysis
| Fundamental Analysis | Technical Analysis |
|---|---|
| Focuses on economic reasons | Focuses on price behavior |
| Uses news & data | Uses charts & indicators |
| Better for medium- to long-term | Better for short-term timing |
| Answers “Why?” | Answers “When?” |
Most professional traders combine both.
3. What Markets Use Fundamental Analysis?
Fundamental analysis is used across all financial markets, but it plays different roles:
Forex
- Interest rates
- Inflation
- Employment
- Central bank policy
Gold & Commodities
- Inflation
- USD strength
- Geopolitical risk
- Supply & demand
Indices & Stocks
- Corporate earnings
- Economic growth
- Interest rates
- Market sentiment
Crypto
- Adoption
- Regulation
- Network usage
- Macro liquidity
4. Key Components of Fundamental Analysis
1. Economic Indicators
Economic indicators show the health of a country’s economy.
Major Economic Data
| Indicator | Why It Matters |
|---|---|
| Interest Rates | Drive currency strength |
| Inflation (CPI) | Measures purchasing power |
| GDP | Shows economic growth |
| Employment (NFP) | Reflects economic stability |
| Retail Sales | Consumer spending strength |
| PMI | Business activity |
2. Central Banks (Very Important)
Central banks control:
- Interest rates
- Money supply
- Economic stability
Major central banks:
- Federal Reserve (USD)
- ECB (EUR)
- BoE (GBP)
- BoJ (JPY)
- RBA (AUD)
Example:
- Higher interest rates → Stronger currency
- Rate cuts → Weaker currency
This is why central bank speeches move markets instantly.
3. Inflation & Interest Rate Relationship
Inflation ↑ → Central bank raises rates → Currency strengthens
Inflation ↓ → Rate cuts → Currency weakens
Gold usually:
- Rises when inflation is high
- Rises when interest rates are low
- Falls when USD strengthens
4. Employment Data (NFP)
The Non-Farm Payrolls (NFP) report:
- Released monthly (USA)
- Causes massive volatility
- Impacts USD, gold, indices
Strong NFP → Strong USD → Gold falls
Weak NFP → Weak USD → Gold rises
5. Fundamental Analysis in Forex Trading
Currencies trade in pairs, so you compare two economies.
Example: EUR/USD
- Strong US economy + weak EU economy → EUR/USD falls
- Weak US economy + strong EU economy → EUR/USD rises
This is called relative strength analysis.
6. Fundamental Analysis in Gold Trading
Gold is not just a commodity—it’s a safe-haven asset.
Gold rises when:
- Inflation increases
- USD weakens
- Interest rates fall
- Economic uncertainty rises
- Geopolitical risk increases
Gold falls when:
- USD strengthens
- Interest rates rise
- Risk appetite increases
7. News Trading vs Fundamental Bias
News Trading
- Trading immediately during news releases
- High risk, high volatility
- Requires experience
Fundamental Bias (Recommended)
- Identify long-term direction
- Use technical analysis to enter
- Much safer approach
Example:
“USD is fundamentally strong → look for buy setups on USD pairs”
8. Economic Calendar (Core Tool)
Every fundamental trader uses an economic calendar.
Shows:
- News release time
- Expected values
- Previous values
- Impact level (Low / Medium / High)
High-impact news moves markets the most.
9. Market Sentiment & Fundamentals
Fundamentals affect market sentiment:
- Risk-on → Stocks up, USD weak, Gold down
- Risk-off → Gold up, JPY & CHF strong
Understanding sentiment helps you avoid trading against the crowd.
10. Common Beginner Mistakes 🚫
❌ Trading news without understanding context
❌ Ignoring central bank tone
❌ Over-reacting to one data point
❌ Not combining with technical analysis
❌ Trading every news release
11. How Professionals Use Fundamental Analysis
✔ Identify macro trend
✔ Track central bank policy
✔ Monitor inflation & employment
✔ Align trades with economic direction
✔ Use charts for entries & exits
Fundamentals set the direction.
Technicals fine-tune execution.
12. Simple Example (Gold)
- Inflation rising
- Fed signals rate cuts
- USD weakens
- Gold breaks resistance
➡ High-probability bullish gold trade
Quick Summary
| Concept | Role |
|---|---|
| Fundamental Analysis | Explains market movement |
| Economic Data | Measures economic health |
| Central Banks | Drive long-term trends |
| Inflation | Impacts rates & gold |
| Employment | Drives currency strength |
| Sentiment | Shows risk appetite |
