What is Fundamental Analysis?
Fundamental analysis is a type of analysis that uses macroeconomic factors and how they influence market sentiment. Political and geographical conditions may also affect fundamental factors in forex analysis.
Fundamental analysis involves economic data and news headlines, as well as other issues that usually drive market sentiment. Traders who use fundamental analysis believe that economic, social, and political forces are the key factors of currency's price movements.
The idea behind this method is that if a country's current or future economic outlook is good, the currency should strengthen. On the other hand, if the country is unstable due to economic downturn, political tension, or even natural disasters, it will drive investors out of the country and trigger the currency's sell-off which leads to a decrease in the currency's price movement. One latest example was what happened to Euro after the Russian invasion of Ukraine.