DEVELOPING A FUNDAMENTAL OUTLOOK

Developing a fundamental outlook is part of the evolution of a forex trader. When you
first begin trading, the focus tends to be on technique and tactics because learning how
to put on the trades and how to read the charts is the most important task at hand. But as
a forex trader develops an understanding of the fundamentals, he or she will eventually
ask the following two questions:
1. What currency pairs should I be trading?
2. What direction is my next trade?
It is helpful to be able to group currencies by their fundamental personalities. We
can see that some currencies are stronger than others and that some currencies are fundamentally
at extremes; those groups become more interesting to trade. A fundamental
view leads to the understanding that the major causes of change in the relative value of
currencies are real or perceived changes in interest rates, inflation, or economic growth
between their economies.
The relationship between fundamentals and forex prices is not a direct relationship;
rather, it is more akin to fuzzy logic or a chemistry of forex. Fundamentals remain in the
background and provide important conditions conducive to a currency’s strengthening or weakening. By forming a fundamental view of currencies, the trader is able to get in
line with the powerful economic forces that currencies ultimately reflect.
To guide traders in conducting their own fundamental analysis, they need to have
their own fundamental forex checklist and action plan. The purpose of the fundamental
forex checklist is to make sure you have the information to make some trade strategy
decisions.
Fundamental Forex Checklist and Action Plan
1. Scan and list current global data on gross domestic product (GDP), interest rates,
and inflation levels.
2. Scan price patterns in commodities such as oil, gold, copper.
3. Review the Trade-Weighted Index (TWI) of each currency to determine if any are
probing key support or resistance.
4. Check the U.S. Dollar Index (USDX) at www.ino.com and compare it to the TWI of
the U.S. dollar.
5. Scan global interest rates and try to group currencies by:
a. Countries expected to raise rates
b. Countries expected to keep rates the same
c. Countries expected to lower rates
6. Choose which currency pairs to trade.
7. Choose the preferred direction of your next trade. If you do not have a preferred
direction, that means you are choosing to trade in either direction.
8. Watch the calendar for economic releases.






By ABE COFNAS