Fundamental Analysis Techniques
How does fundamental analysis explain long term trends? |
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Fundamental analysis is very useful for determining long-term trends within a currency pair. By focusing on long term economic factors that affect countries, fundamental analysis predicts long term trends. For example, the rising cost of Crude Oil led to a downward trend in the USD/CAD from 2003 through September of 2005.
A graph of the USD/CAD, from October 2002 to October 2005
This graph shows the long term downward trend of the USD/CAD over the past three years, which is composed of smaller trends. Can fundamental analysis explain short-term trends?
Fundamental analysis can also explain short-term trends. By keeping up to date with economic data, rumors, and news, a fundamental trader can better forecast short term trends since these are all factors that affect currency pricing. For example, on May 29th of 2005, France was widely expected to vote against accepting the European Union Constitution, which had been causing steady weakness in the EUR/USD currency pair. In spite of expectations, when the no vote was confirmed, the currency pair sold off more than 400 pips in the next three days.
Short term selling of over 400 pips in three days
