“To gain profit anywhere, you need to put efforts.”
The concept is very apt in the forex market. A highly fluctuating and money-spinning industry, there are equal chances of large profits as well as disastrous losses. And prediction plays a major role here in giving you maximum profitable returns. As a beginner, you should know that there are different approaches to predict the future of currency movement, the major one being forex fundamental forecast.
Before proceeding, let me tell you that it is important to forecast market trends before investing to gain maximum profits. This is a highly efficient tool to foresee the price movement in a chaotic FX market better.
The concept of forex fundamental forecast:
Fundamental forecast or analysis is a category of market examination where you need to study the economic status and condition of a particular country for trading currency. You need to analyse areas like political scenario, social conditions, etc. that are influencing the currency market. Factors like interest rate, employment scenario, GDP, etc. should be considered. Other external factors like environmental factors, weather conditions are also noted. This is a more detailed study that gives out highly accurate predictions.
The estimation for future instability of exchange rate is done based on economic parameters, news flows and other indicators.
Let us discuss the 3 fundamental factors in brief:
- Interest rates:
Interest rate is a major factor that affects currency value largely. That’s because these rates are directly controlled by the central bank of that particular country and any changes in it is going to have a direct impact on economy. Usually, it is wiser to invest in a country whose interest rates are higher. It is essential to have an in-depth understanding of the market in order to avoid potential risks.
- Employment scenario:
The next factor of forex fundamental forecast is to analyse the employment scenario of that particular country. I’ll give you two reasons for this –
- Consumer spending behaviour is directly affected by employment
- Consumer spending behaviour creates an impact on inflation that ultimately affects the central bank’s verdicts on interest rates
Now ask, how come? Simple! If employment increases, consumers are likely to spend more on commodities. That would eventually increase domestic demand. Here, if inflation becomes a matter of concern, central bank of that country would probably increase rates of interest for easing spending behaviour. This whole scenario will have a direct impact on currency market and give you a prediction of the decisions of central bank. That’s how the system works.
- Expectation of economic growth:
Also, analysing where the country’s economy is heading to, is important before investing in the forex market. Gross Domestic Product (GDP), price chart, indicators of growth or inflation are factors that come into consideration in forex fundamental forecast.
Remember that forex industry reacts immediately to latest events and news as it is a 24x7 market. So, you cannot also ignore geopolitical issues like civil unrest, war, etc.
If you are a novice, I would always advise you to start with a demo account. There are online forex trading sites which offer free usage of demo accounts, specifically for beginners like you. The more you practice, the more you will learn about forex fundamental forecast. Good Luck!
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.