What is Forex Analysis?
Forex analysis is the practice of examining the changes in currency pair prices and the forces influencing those price changes. It is used by forex traders who buy and sell currencies with the goal of making a profit. Fundamental and technical analysis methods are both used in forex trading, with many traders using a hybrid approach that combines both techniques.
Forex analysis is the study of determining whether to buy, sell, or wait on trading a currency pair.
Currencies trade in pairs, with the exchange rates based on the price of one currency relative to the other.
Major types of analysis include technical and fundamental, with many traders using a blend of both approaches.
How Forex Analysis Works
The foreign exchange market is the largest market in the world, with trillions of dollars changing hands on a daily basis. Retail traders and financial firms both regularly engage in forex analysis to try to profit from this large and important market. Today, the forex market is open 24 hours a day, five days a week, with most activity concentrated in global trading hubs such as London, New York, and Tokyo.
Unlike the stock market, in which investors can purchase shares of individual companies, the currencies traded in the forex market always trade in pairs. When one of the currencies in a pair is purchased, this necessarily means that the other currency in the pair is sold. Some of the most commonly traded currency pairs in the world include USD/CAD, EUR/USD, and EUR/JPY.
Forex analysis is the practice of determining which currency within a pair is likely to be stronger over a given period of time. Forex traders can then use this knowledge to purchase the currency that they expect to increase in value, or to sell the currency they think will decline in value. To help make these predictions, forex traders will study a range of sources. These include fundamental factors, such as the state of the nations’ economies, the price of relevant commodities such as oil, or any major news events affecting international economics. Technical factors are also considered, such as the recent price history of the currency relative to its historical averages.