By Martin Maier
HOW DO Economic Events impact Global Currencies:
When I asked several traders about their thoughts about using
fundamental analysis as a part of their trading decisions, I
have received two opposite responses.
RESPONSE of Trader A
Fundamentals that you read about are typically useless as the
market has already discounted the price. I am looking at (1)
the long term trend, (2) the current chart pattern and (3)
identifying a good entry point to buy or to sell.
RESPONSE of Trader B
I almost always trade on a market view. I don't trade simply
technical information alone. I use technical analysis and it
terrific, but I can't initiate or hold a position unless I
understand why the market should move.
There is a great deal of hype attached to technical analysis
some technicians who claim that it predicts the future.
Technical analysis tracks the past; it does not predict the
future. You have to use your own intelligence to draw
conclusions about what the past activity of some traders say
about the future activity of other traders.
For me, technical analysis is like a thermometer.
Fundamentalists who say they are not going to pay any
to the charts are like a doctor who says he's not going to
a patient's temperature. If you want to be a successful trader
in the market, you always want to know where the market is- up
– down- trending or choppy .You want to know everything you
about the market to give you an edge.
Technical analysis reflects the vote of the entire marketplace
and, therefore, does pick up unusual behavior. By definition,
anything that creates a new chart pattern is something
It is very important to study the details of price action to
see and observe. Studying the charts is absolutely crucial and
alerts to existing disequilibrium and potential changes.
For forex traders, the fundamentals are everything that makes
The release of economic & inflation indicators (i.e., consumer
spending, employment cost index, government spending, producer
price index, etc.), political actors, government policy or an
individual event can set the market in a frenzy. These have to
be considered when making the decision “ to trade or not to
Technical analysis, is a way of using historical price data in
different ways to predict the future price of a currency pair.
Fundamental analysis is a very effective way to forecast
economic conditions, but not necessarily exact market prices,
and you SHOULD trade in agreement with the supporting
Foreign exchange traders put the most emphasis on technical
analysis, because traders around the world use similar charts
and tools in predicting market trends.
The reason the FOREX market can be so predictable some times
that if the majority are using the same graph for determining
patterns and trends, then it is highly likely that they will
act in a similar manner.
So several thousand traders who have all charted the same
resistance line, for example, will most likely either set
trades and direction conform to that line.
When fundamental data is made available to the public there is
a reaction from investors and speculators.
Information in the form of news and economic indicators is
vague than that of technical indicators. There is a lot of
area in this type of analysis. The market will ultimately
to how people think the economic data compares to the current
Economic indicators usually reveal information that "Should
cause a currency to go up in price" or "May cause a currency
go down". The words “SHOULD” & “MAY” in the quotes above
the ambiguity of the fundamental data.
Here is an example of what analyzing fundamental data is like.
Let's suppose there are six economic indicators (there are a
Let's call our six indicators 1, 2, 3, 4, 5, and 6. Now we
for the data from our indicators to be published in a
magazine or at an online source. We get the readings for our
economic data for the EURO as following:
Indicator 1: is in a range where the Euro may go up
Indicator 2: is in a range where the Euro should go up
Indicator 3: is in a range where the Euro could go down
Indicator 4: is in a range where the Euro usually goes down
Indicator 5: is in a range where the Euro could go up
Indicator 6: is in a range where the Euro may go down
By looking at the above indicators, you don't know what the
Euro is going to do. Furthermore, currencies are always traded
in pairs. So you would have to get the fundamental data for
another currency pair and compare it with the EURO. I think
can image that this is not a simple task.
I do not want to discourage you away from fundamental data.
best way to learn is to learn about one piece of economic data
at a time. Eventually you will build a puzzle from all of the
fundamental and technical data and make more informed trading
About The Author: Veteran Trader Martin Maier is the Founder
Fenix Capital Management LLC
www.fenixcapitalmanagement.com He is the developer of
various futures and commodities trading programs and his
systems have been ranked and rated by various large American
Investment Profile Rating Companies such as STAR and MAR.