Module 19: Fundamental Analysis
Key Takeaways
- Fundamentals drive the big-picture direction; technicals time the entry.
- Interest rates and inflation are the most powerful drivers for forex and indices.
- High-impact news causes volatility — manage risk around it.
News trading
Markets react to scheduled economic releases. Some traders trade the volatility directly; others avoid trading minutes before/after to dodge unpredictable spikes and widening spreads. Know what’s on the calendar before you trade.
CPI (Consumer Price Index)
The main inflation gauge. Higher-than-expected CPI often strengthens a currency (rate-hike expectations) and can pressure stocks.
Inflation
Rising inflation pushes central banks to raise rates, which generally strengthens the currency but can hurt equities and gold depending on context.
Interest rates
The single biggest forex driver. Higher rates attract capital and tend to strengthen a currency; cuts tend to weaken it.
GDP
Gross Domestic Product measures economic growth. Strong GDP supports a currency and risk assets; weak GDP signals slowdown.
Employment data
Reports like US Non-Farm Payrolls (NFP) move markets sharply. Strong jobs data signals a healthy economy and can support rate hikes.
FOMC meetings
The US Federal Reserve sets rates at FOMC meetings. The decision and the Chair’s press conference are among the highest-impact events for all markets.
Economic calendar
Use an economic calendar (e.g. Forex Factory, Investing.com) to see upcoming releases, their expected impact, and the forecast vs previous values. Plan your trading day around high-impact events.
Spreads can widen dramatically and price can gap during major news. Reduce size or stand aside if you’re not specifically trading the event.
Frequently Asked Questions
At minimum, know when high-impact news is due so you’re not blindsided by a volatility spike.