Core Trading Skills • Lesson 2
Introduction to Fundamental Analysis 🌍
Fundamental analysis helps you understand the real-world reasons why currencies move. It looks beyond the chart and focuses on the economy, news, central banks, and market sentiment.
Interest rates and policy decisions.
Inflation, jobs, growth, and reports.
Events that can move markets fast.
What Fundamental Analysis Really Means
Fundamental analysis looks at the real-world forces behind market movement.
While technical analysis focuses on charts, fundamental analysis focuses on things like:
How attractive a currency may become.
How fast prices are rising.
How strong or weak the labour market is.
Whether an economy is expanding or slowing.
Leadership, elections, conflict, and uncertainty.
Whether traders feel confident or fearful.
A currency can strengthen or weaken because traders are reacting to new information.
Technical vs Fundamental Analysis
Both technical and fundamental analysis can help you understand the market, but they answer different questions.
Technical Analysis
Looks at the chart and asks:
What is price doing on the chart?
Fundamental Analysis
Looks at real-world events and asks:
Why might price be moving?
A technical trader may see a breakout on the chart.
A fundamental trader may understand that the breakout happened because of interest rate news, inflation data, or a central bank announcement.
The strongest traders often learn to respect both.
How News Can Move a Currency
Economic news can change currency demand
Simple Flow
Example: inflation report
Traders expect rate changes
Buyers or sellers step in
Price moves on the chart
Interest Rates
Interest rates are one of the biggest drivers of currency movement.
When a country raises interest rates, its currency may become more attractive because investors may earn better returns.
When a country lowers interest rates, its currency may weaken because lower returns can make it less attractive.
Rates Go Up
A currency may strengthen because higher returns can attract investors.
Rates Go Down
A currency may weaken because lower returns can make it less attractive.
This is not automatic every time, but interest rates are very important.
Candlestick Example
Interest rate decision causing a bullish breakout
Example only
When traders expect higher interest rates, demand for that currency may increase. On a chart, this can appear as strong bullish candles breaking above a previous level.
Inflation
Inflation measures how fast prices are rising.
If inflation is too high, a central bank may raise interest rates to slow it down.
If inflation is too low or the economy is weak, a central bank may lower rates to support growth.
Inflation Example 🔥
High inflation: prices are rising too fast.
Central bank response: interest rates may be raised.
Market reaction: the currency may move strongly.
Because of this, inflation reports can move forex pairs quickly.
Candlestick Example
Inflation news creating a spike and reversal
CPI example
Inflation reports can cause sharp movement. Sometimes price spikes in one direction, then quickly reverses as traders digest the news.
Employment Data
Employment data shows how strong or weak a labour market is.
Strong employment can suggest that an economy is healthy.
Weak employment can suggest that the economy is struggling.
Strong Jobs Data
May show a healthy economy and support the currency.
Weak Jobs Data
May show economic weakness and pressure the currency.
In the United States, traders often watch employment reports closely because the US dollar affects many forex pairs.
Central Banks
Central banks are major players in the forex market.
They influence interest rates, money supply, inflation control, and economic policy.
Central Banks to Know 🏦
United States
Euro Area
United Kingdom
Japan
South Africa
Their speeches and decisions can create strong market movement.
Risk Sentiment
Risk sentiment means how confident or fearful traders feel.
Risk-On Mood
Traders feel confident. They may buy riskier assets and currencies linked to growth.
Risk-Off Mood
Traders feel fearful. They may move money into safer assets or reduce risky positions.
This can affect currencies, gold, indices, and other markets.
News Can Create Volatility
Important news events can cause fast price movement.
This can create opportunity, but it can also be dangerous for beginners.
News Trading Warning ⚠️
During high-impact news, spreads may widen and price may move sharply in both directions. This can make entries, exits, and stop losses harder to control.
Fast spikes
Wider spreads
Sudden reversals
Candlestick Example
What volatility looks like with candlesticks
High risk
Volatility means price is moving strongly. With candlesticks, high volatility often appears as bigger candle bodies, longer wicks, and wider price swings.
Normal Movement
Smaller candles and calmer movement.
High Volatility
Bigger candles, longer wicks, and faster movement.
A beginner should first observe news events instead of rushing to trade them.
Beginner Tip
You do not need to understand every economic report immediately.
Start with the major drivers:
Focus on These First 🎯
Interest rates
Inflation reports
Employment data
Central bank speeches
Major political or global events
Over time, you will learn which events affect the pairs you follow.
Mini Practice
Try This Before the Next Lesson 🧪
Choose one currency pair and check what major news events may affect it this week. You do not need to trade. Just observe and learn.
Choose one pair, for example EUR/USD, GBP/USD, USD/JPY, or USD/ZAR.
Look for interest rate, inflation, employment, or central bank events.
Watch how price behaves before and after the news.
Write one sentence explaining what happened.
Quick Self-Check
Before moving on, test yourself:
What does fundamental analysis study?
It studies the real-world reasons why markets move, such as interest rates, inflation, employment, central banks, and news.
Why are interest rates important?
They can affect how attractive a currency is to investors and traders.
Should beginners rush to trade high-impact news?
No. Beginners should first observe news events because price can move quickly, spreads can widen, and risk can increase.
Quick Recap
What You Learned ✅
- Fundamental analysis studies why markets move.
- Interest rates are one of the biggest currency drivers.
- Inflation and employment data can move markets.
- Central banks have a strong influence on currencies.
- News can create both opportunity and risk.
- Beginners should observe major news before trading it.
⚠️ Educational only — not financial advice.
News trading can be risky, especially for beginners. Practise on demo first and focus on understanding why price moves before risking real money.