Forex Fundamental Analysis: Part 2

Analysis on the Basis of Social and Political Factors

While analyzing the market according to the social and political factors, a trader will analyze the concepts like geopolitical tensions, economic regulation, economical habits of the nation, and all the other aspects that are directly or indirectly related to the economic functions.

Any change in the political environment of the country can lead to a change in the value of the currency. Also, the economic dynamism of the country is affected by the regulatory structure of that country which is finally shown by the GDP values and ultimately on the currency value. Apart from this, a social and political analysis is very helpful in predicting the currency value to all economic events of the world.

Let’s take an example: when the economy collapsed in 2008 due to the real estate bubble, the European Union was at lesser dept burden as compared to the American one. Therefore, the EU economy was expected to perform better. But many ignored the fact that they should also consider the habits and mentality of the European consumer. Actually what happened was exactly the opposite as the European people reduced their spending much more than expected as their mindset is quite conservative.

Many traders just analyze the raw data and tend to ignore the characteristics of different nations which ultimately lead to errors on a grand scale. So, it is crucial to analyze the social and political aspects of the nation. The differences in the national characteristics of the countries may not be due to hereditary factors at all but may be attributable to different economic options exercised by the countries and different nature of their demographics.

Economic Analysis

Economic analysis is, of course, the heartbeat of fundamental analysis. Under the economic analysis, traders study the economic news and statistical releases to interpret if the data is signaling a profitable trade or not. They keep track of a large number of indicators which often have an impact on the market movement in the short term. The data that is available to make future predictions about market and price changes is quite vast and is not limited by any stretch of the imagination. For example, the market participants carefully follow the values of GDP on a quarterly basis as it releases sparks excitement in the market. But the fact is that this data is not futuristic; it is a backward data, and its value should be a minuscule while analyzing a trade for profits.

Chapter 12…..Forex Fundamental Analysis: Part 3…..>>>

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