FUNDAMENTAL ANALYSISThe focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment.
Several theories prevail as to how currencies should be valued. Currency prices are a reflection of the balance between supply and demand for currencies. Interest rates and the overall strength of the economy are the two primary factors that affect supply and demand. Economic indicators (for example, GDP, foreign investment and the trade balance) reflect the overall health of an economy. Therefore, they are responsible for the underlying changes in supply and demand for that currency.
A tremendous amount of data is released at regular intervals, and some of this data is significant. Data that is related to interest rates and international trade is analyzed very closely.