Fundamental Analysis

Fundamentals explain why currencies move. This guide covers the most important drivers: central banks, inflation, growth, and risk sentiment.

Table of contents

  1. Central banks
  2. Key indicators
  3. Using an economic calendar
  4. A simple framework

1) Central banks

Interest rates and expectations drive currencies. When a central bank is more hawkish (higher rates), its currency often strengthens—especially against a dovish counterpart.

2) Key indicators

Inflation (CPI)

Higher inflation can push rates higher; watch surprises vs expectations.

Employment

Jobs data affects growth expectations and policy decisions.

GDP / Growth

Growth divergence between economies often drives longer trends.

Risk sentiment

In risk-off periods, safe-haven flows can dominate fundamentals.

3) Using an economic calendar

  • Focus on high-impact events for your pair.
  • Trade the plan, not the headline; volatility can spike both ways.
  • Watch expectations: markets react to surprises.

4) A simple framework

  1. Pick a pair and identify which economy is stronger / more hawkish.
  2. Use technical levels to time entries in the fundamental direction.
  3. Reduce risk around major releases if you’re new.

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