Forex Market can be analysed in two different ways, individually or in combination. Let’s discover Fundamental and Technical analysis and see how sentiment affects Forex analysis too.
In the Forex market there are analysts, economists and forecasters. Everyone is trading to forecast which way the market will go, and whether it will rise or fall.
The two main approaches for analyzing the movements in the Forex market are the “fundamental analysis” and the “technical analysis”. The main difference between technical and fundamental analysts is that the latter concentrate on causes of movements in the market. On the other hand, technical analysts concentrate on the effects of market movements.
However, each trader’s thoughts and opinions, expressed through their positions, helps form the overall sentiment of the market. This happens regardless of the available data and information. Thus, another important data to take into consideration along with analysis is to watch out for signs to decide whether the market is bullish or bearish.
So, you probably have to take market sentiment into consideration along with your fundamental and/or technical analysis.
Finally, keep in mind that no analysis can provide accurate price prediction. There is no guarantee for exact numbers or trends. Forex analysis is more about probabilities and statistics.
START TRADINGForex Analysis: Fundamental Analysis
Social, economic, and political factors affect currency supply and demand. The fundamental analysis focuses on financial and economical theories, as well as political developments, to determine the forces of supply and demand. The difficult part is to combine and analyse all factors affecting the price of a currency at the same time.
Technical Analysis
The technical analysis focuses on price levels and trade volumes. Analyzing such data, Forex market experts and traders form expectations for future levels of the market. What technical analysis mainly does is to look at historical price movements and try to find similar trends and patterns to predict whether prices will act as they did before. The main tool of technical analysis is charts as it is the easiest way to visualize such data. However, technical analysis has the «drawback” of being subjective when interpreting data. Technical analysis also includes indicators and trends.
Sources: Investopedia, Wikipedia, Babypips