ROLE OF ANALYSIS IN FOREX

When you make analyses of the Forex market, you try to predict which way the market movement will be. Here if your predictions are right you play with money and if wrong, you just sit and pull your hairs. Forex analyses can be done in two ways. Technical and fundamental are the two ways in which one can do analysis.

Examining the currency prices is technical analysis. As your technical analysis becomes stronger day by day, you can tell your pattern what is going to be the trend of the market. For example, lets take the dollar value that has been steadily growing for several weeks. This shows that, there will be a continues growth in dollar in future, but for a short term. Identifying the trend of a market is the most important aspect when you are doing technical analysis. Being a trader, you can identify the market trend by doing technical analysis; trades taken by you can be converted into profits. As early you identify the trend, you are likely to have more and more profit.

Analysis of a particular currency of a given country depends on its economical, social and political conditions and the forces influencing its value are known as Fundamental analysis. If you find that the political, social, economical conditions and the government of that country are stable, the value of that currency will rise from those countries whose economies are week. 

Zimbabwe is a country whose economy is very week, currently as of early 2008. This is all because of week and fraudulent government, currently, farmland has been stolen and due to unstable and corrupt government its currency reserves has been plundered. Zimbabwe’s inflation rate is now over 1000%. This means that more then 90% the value of its currency is losing year by year. Its (Zimbabwe) currency value at present not worth then a paper as it is printed on. 

Even after having a strong economical, political and social condition and a strong government still the value of a currency influences due to the reserves bank’s actions (such as in UK the Bank of England or in US the Federal Reserve).

If one wants to get best results, both the fundamental and technical analysis is to be used when you trade in Forex.

When you check that the trades taken few hours later, you find that, the market movement is against you. You choose to come out of the open positions, so that you can recover your losses; you execute your open positions less then the purchased price. Here, now in place of booking profit you make a loss. Now what happened here? The Bank of England sets its base interest rates, on every first Thursday of every month.

On November 8, Thursday 2007, the United Kingdom Banks were supposed to increase its interest rate. This means that the inflation rates in UK were lower, so the value of Sterling went up.
The Bank of England over here was going to hold the UK interest rate. Behind the fall of GBP, this was the main reason.