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The Sensitivity of the Forex Market in Relation to Fundamentals

April 18, 2012 | Comments: 0 | Views: 133

Fundamental analysis is all about studying and keeping up-to-date with all of the latest news releases and key economic data. Forex traders will focus more on economic indicators, which are also known as fundamental indicators, when conducting fundamental analysis.

There are many different economic indicators, though the main ones are: interest rates, gross domestic product (GDP), trade balances, employment and inflation.

A common misconception made by currency traders when carrying out fundamental analysis, is that the fundamental indicators must change in order to move the Forex market. However, the market for currencies is so sensitive to fundamentals, that it can move without any of the economic indicators actually changing.

Remember, the currency market is all about mass psychology and the minds of the traders and investors in it collectively. Trends are developing through longer-term buying and selling pressures. This means that whatever Forex traders think collectively, the FX market will move accordingly. Any hint of a change in one of the fundamental indicators, in one of the main ones especially, can cause a lot of movement in the Forex market purely because of the traders in it.

Of course actual changes can cause much greater market movements and larger changes in the prices of currency pairs. Do bear in mind though, that no fundamental indicator has to change in order to spark some currency market movement. Remember, the markets move even before important news releases are released, because of anticipatory buying and selling. When carrying out your fundamental analysis, ensure that you are aware that the market for currencies can be very sensitive and try to stay up-to-date with the all of the news. Don't just look at the news around the dates of important news releases and such, but try to keep up-to-date with the news all the time so that you can be aware of any possible hints that could cause the price(s) of the currency pair(s) you are trading to move.

Remember to conduct fundamental analysis whatever Forex trading strategy you use, because fundamentals really can move the markets. You should at least be aware of the main fundamental indicators and the news in general, so that you will be one of the first to know any changes in the any of the economic indicators as well as any hints of any changes. It might seem like a bit of an effort, but you should always be aware of what's going on outside of your currency trading platform, or you could deduce unnecessary losses due to unfavorable Forex market movements caused by fundamentals that you were not aware of.

In conclusion, the market for currencies can be extremely sensitive to any changes or even any hints of any changes in any of the fundamental indicators. For example, if an influential figure or organization came out with a prediction regarding interest rates for a particular country, this could definitely affect the price of the country's currency even if the prediction ended up being wrong. By keeping up-to-date with the news in general, not just with the dates of important news releases and by having a strong understanding of the main economic indicators, you will be able to maximize your chances of success and profits.

How Forex Trading Works is a resourceful website that serves to deliver free, online content relating to Forex trading, to anyone and everyone.

Source: EzineArticles
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