Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.
In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their forex trading strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately.

About fundamental analysis

There follows parts of fundamental analysis will be described:
Forex economic indicators list

Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework.

Bearing in mind that the financial underpinnings of any country, trading bloc or multinational industry takes into account many factors, including social, political and economic influences, staying on top of an extremely fluid fundamental picture can be challenging. At the same time, you'll find that your knowledge and understanding of a dynamic global market will increase immeasurably as you delve further and further into the complexities and subtleties of the fundamentals of the markets.

Fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. However, you'll need to come up with a precise method as to how best to translate this information into entry and exit points for a particular trading strategy.

A fundamental trading strategy (often used by online forex traders) is also known as forex fundamental analysis. It is made up of strategic assessments in which a particular currency is traded on the basis of various criteria with the exception of the price action. To these criteria belong current economic conditions in the state that this currency represents and a great deal of other elements essential for the subject. Everything that is fundamental to economies should be regarded as elements of fundamental analysis. Macroeconomic indicators, such as economic growth rates, inflation, interest rates, level of unemployment and other issues – all that is relevant for a good forex fundamental analysis.

Online forex fundamental analysis focuses on the economic, political and social powers driving supply and demand at the market. Currency prices reflect the balance existing between supply and demand for market currencies. There are two major factors affecting supply and demand balance. They are interest rates and the overall strength of the economy respectively. Various economic indicators, such as GDP and others, are in charge of reflecting the overall health of the given economy. They are responsible for the changes that underlie in supply and demand for a specific currency.

Online forex fundamental analysis may turn out to be a very tense thing to deal with. When dealing with commodities, currencies and some other so-called margined products it’s especially obvious. The problem is that rather frequently online forex fundamental analyses doesn’t provide entry and exit points, so risk control may seem rather difficult, especially when applying leverage techniques. Huge amounts of information come out at regular intervals and only a part of it is of some importance. The most closely analyzed data is the one related to interest rates and international trade.

A trader who studies the markets using fundamental analysis will generally create models to formulate a trading strategy. These models typically utilize a host of empirical data and attempt to forecast market behavior and estimate future values or prices by using past values of core economic indicators. This information is then used to derive specific trades that best exploit this information.

Forecasting models are as numerous and varied as the traders and market buffs that create them. Two people can look at the exact same data and come up with two completely different conclusions about how the market will be influenced by it. Therefore is it important that before casting yourself into a particular mold regarding any aspect of market analysis, you study the fundamentals and see how they best fit your trading style and expectations.

For forex traders, the fundamentals are everything that makes a country tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events. Therefore, it is best to get a handle on the most influential contributors to this diverse mix than it is to formulate a comprehensive list of all "The Fundamentals."

Fundamental elements:

I. The Basic Concept Of An Economy

The performance of an investment will be influenced by the economy. The effects of inflation or deflation may interfere with anticipated returns. Thus, the direction of the economy must be considered when formulating an investment strategy.

A. The Business Cycle

The business cycle represents a repetitive succession of changes in economic activity. The business cycle has four phases: expansion (also called recovery), peak, recession (also call contraction), and trough.

In the expansion phase, business activity is growing, production and demand are increasing, and employment is expanding. Businesses and consumers normally borrow money to expand, which causes interest rates to rise.

B. Inflation

As the cycle moves into the peak, demand for goods overtakes supply and prices rise. This creates inflation. During inflationary times, there is too much money chasing more for their items causing prices to rise. This, in turn, reduces the purchasing power of the consumer.
As prices rise, demand slackens which causes economic activity to decrease. The cycle then enters the recessionary phase.

C. Deflation

As business activity contracts, employers lay off workers (unemployment increases) and demand slackens. Usually, this cause prices to fall creating deflation. The cycle enters the trough. Deflation is the persistent and appreciable fall in the general level of prices. Eventually, lower prices will stimulate demand and the economy moves into the next cycles, expansion.

II. Gross National Product
One of the most significant measures of economic activity is the Gross National Product (GNP). GNP is the total value of goods and services produced by the entire US economy. Components of the GNP include consumer spending, investments, government spending, and net exports.
A recession occurs when Real GNP (Gross National Product adjusted for inflation) has declined for two successive quarters.

III. Business Cycle Indicators

Economists use three types of indicators that provide monthly data on the movement of the economy as the business cycle enters different phases. The three types are leading, coincident, and lagging indicators. For FOREX trading we will only look at leading economic indicators that provide the greatest impact on the economy.

IV. The Effect Of The Business Cycle On FOREX Market

As the economy moves through the different phases of the business cycle, the FOREX market reacts to these changes. Investors view these changes and take corresponding action, attempting to take advantage of changes in the economy.
In the FOREX market, the US Dollar will move inversely to interest rates. As interest rates increase, there will be a drain on earnings, resulting in a decline in the US Dollar Index.

V. Monetary Policy

Monetary policy attempts to control the supply of money and credit in the economy. This will affect interest rates causing an increase or decrease in economic activity. The primary focus of monetary policy is the control of inflation.

VI. The Federal Reserve System

The Federal Reserve System implements monetary policy in the US. An Act of Congress established the Federal Reserve System, the nation’s central bank, in 1913. The Act divided the country into 12 Federal Reserve districts. Responsibility for coordination the activities of the district banks lies with the Federal Reserve Board of Governors in Washington D.C. The board has seven members appointed by the President and confirmed by the Senate.