The study of an economy or business and how they affect the price of a certain asset is called Fundamental analysis. Fundamental analysis, similar to technical analysis, also tries to predict the futures price and trend of a certain asset based on market news, economic data and government policies.
Fundamental analysis is based on such a broad spectrum of events and data that can easily take the market by storm by creating rapid price changes.
As the interest rates in a country rise, the currency of that country strengthens and vice versa.
Strong employment is a sign of a strong economy, while weak employment shows an economy that is struggling, which affects the currency of the country positively or negatively.
A large negative trade balance can also cause a weak currency as commercial interests are forced to continually sell large amounts of the country’s currency.
Fundamental analysis is very useful in determining overall trends. A single unemployment report is insufficient to determine the price trend of a particular asset. Several fundamental data points are needed to determine a general trend and technical tools are then used to determine exact entry and exit points.