Economic news

Why study fundamentals

Fundamentals matter in currency trading because they explain how the economy, politics and interest rates move the value of a currency. Reading them makes the decision of when to buy or sell a currency an informed one. A useful division of labor: the fundamentals pick the direction, and the technicals pick the entries and exits.

The three pillars

Fundamental analysis rests on three things: the performance of the economy, the decisions of the central bank, and geopolitical events.

Economic performance

What is the overall state of the economy, and where is it projected to go? These are the figures governments and central banks use to make decisions, and they feed both fiscal and monetary policy.

• Growth is measured by GDP, gross domestic product, the value of the goods and services an economy produces.
• Price stability is measured by inflation, reported as the consumer price index, CPI. Around 2 percent is the sweet spot, neither too high nor too low.
• The health of the labor market is measured by employment. More jobs are good for the currency, fewer jobs are bad for it.

Central bank decisions

An interest rate is the interest due per period as a proportion of the amount lent, deposited or borrowed; the total depends on the principal, the rate, the compounding and the time. Higher interest rates are read as hawkish for a currency, and tend to strengthen it.

Inflation is the rate at which a currency loses value, which is the same as the rate at which prices rise. It matters to a currency's value because rising prices push the central bank to raise interest rates to meet its mandate of containing inflation. Too much inflation is bad, and too little, deflation, is bad as well.

Central bank statements are worth listening to. Whether it is the Federal Reserve, the European Central Bank or the Reserve Bank of Australia, each bank has an agenda, and its outlook and plans say a great deal about where its currency may go. If a bank sounds like it plans to raise rates, that is bullish for its currency.

Geopolitical events

Change is happening everywhere, and it can cause drastic moves in currencies. Elections, wars, attacks and the pronouncements of heads of state can all hit a market directly. Keep an eye on them, read the latest developments, and form opinions based on facts.

Follow the releases

The Fundamentals page lists the upcoming releases for the currencies you trade with their previous and expected readings, and the news view shows the headlines that move your pairs as they land, so the direction you pick has the data behind it.