Forex Trading Signals From Fundamental Indicators


Forex singals are trading signals which will let you know when to enter and close trades. While many currency traders prefer to take their forex trade signals from technical analysis tools such as Forex Killer or the FX Invincible (see Forex Invincible review), the importance of the fundamental factors in the market should always be kept in mind. In the end, the market is driven by economic forces, not by price charts. So we should not forget to check the financial and economic news alerts and announcements that everybody has access to online.

New traders are often discouraged by the number of economic factors that have to be taken into account in fundamental analysis. Not only are there a lot of them, but news is being released all over the world. It is not enough to watch the financial news from the USA. You have to keep on top of all of the currencies involved in any pairs that you trade.

However, the good news is that some factors are more important than others. Even better, a lot of them are related, so you can often form an idea of what is likely to happen from the knock on effect of different announcements. In this article we will look at the most important fundamental indicators that might be used for forex trade signals, and at the relationships between them.

Top of the list is interest rates. An interest rate rise or fall in the USA or one of the other major players in the forex market can have a ripple effect across many currency pairs, even those that do not include the affected currency. Understanding this effect can provide forex trade signals for some traders who work with fundamental analysis all of the time.

The reason that the interest rate affects currency values so strongly and so fast is really quite simple. Unlike other factors that tend to be reported monthly or quarterly, a change in the interest rate can happen at any time. It is therefore the fastest indication that a country’s economy is strengthening or weakening.

An interest rate rise is a positive sign of a strong economy. International investors will immediately be drawn to investing in that country. In order to buy stocks or shares there, they need the country’s currency, so there will be a bigger demand for that currency, pushing up its value.

At the same time, they will be selling investments in countries with weaker economies to free up some capital. This leads to a drop in currency prices in countries that are perceived to be weakening.

So interest rates are probably the most important factor in determining fundamental forex trade signals. However, there are many other factors which can indicate the strength of the economy in a country. All of these will have some impact on interest rates and on currency prices. Here are some of the most significant:

  • Consumer Price Index (CPI)
  • Producers’ Price Index (PPI)
  • Gross Domestic Product (GDP)
  • Payroll or Employment figures
  • Retail Sales
  • Durable Goods Orders

These indices might have different names in different countries, but a rising index will always indicate a strong economy. Some rise in the currency price can be expected in the short or long term, unless of course the announced increase in an index was less than expected. If that happens, the market may already have moved further than it should and there could be a retracement. It is important to keep this in mind when using indicators such as these for forex trade signals.

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