There are two major factors to determine currency prices – political and economic changes. Hence, traders usually collect sufficient information on political stability within the country, latest economic policies introduced by government, growth rates, unemployment rates and inflation from various news sources. Therefore, bear in mind that forex is different from stock market as no one is capable of controlling currency prices (even though some consider that the market is purely based on supply and demand). But perhaps, the most significant factors are interest rates as well as the potential of economy to grow significantly based on changes in gross domestic product (GDP), foreign investment and trade balances. Normally, traders are required to observe closely on weekly and monthly indicators or reports released by government.
The reports contain information such as consumer price index (CPI), interest rates, producer price index (PPI) and international trades that will influence the currency prices. A country’s economic health can be predicted via such information. Policy makers usually released reports on PPI (indicates price changes by domestic producers for the output) while CPI calculates price changes in goods and services in the same region or district for particular period. Interest rates are also important as it will either reinforce or deteriorate the currency.
Stock market investors bound to sell off their portfolios if the interest rates increased. As a result, when investors or share holders in particular organization sell off their holdings, it could lead to uproar in the market and hence, causes instability in economy. Here are some practical tips to use fundamental studies effectively in Forex trading strategies – keep an eye on the news sources 24/7 as slight changes in the market indicates currency changes and remember to have an economic calendar in hand to keep track of the events and weekly reports released by policy makers.