Trading Using Fundamentals


I am new to forex trading, and I am wanting to trade with fundamentals. I am using the Trading Economics site and there is plenty of data to analyze. I am looking at the next news story and I want to make the right decision. The trade I am interested in is the JPY inflation release. I am looking at USDJPY and looking to trade this. How do I analyze the USD? How do I analyze the JPY? I am looking at Trading Economics “Indicators” which has data on every country. Lots of good stuff there but I do not know where to begin. How do I match up the yen and match up the dollar using this information?

The sensible answer is that trading with fundamentals is the same as trading with technical analysis - both are lagging behind order flow and price movement. The FX market contains millions of traders, who react to fundamental news in different ways. By the time it gets to you, the Big Banks have moved the market, and all you could do is to hang on to their coat tails.

As for USD/JPY, by the time you hear about the JPY inflation release, the market has already moved. With the USD, it’s in an upward trend with the JPY, but whether that would continue relies on the US economy being continually hyped up as strong. has the quickest response to major changes, but it costs a lot of money to use it - something that the Big Banks can fund, and unless we’re millionaires it’s out of our range.

I would suggest you could use Trading Economics ‘indicators’ to trade minor and exotic pairs, not the Majors, because the Big banks would ignore these. Could be your edge.

Best of luck.

True. This is the way to go, in my opinion. People often talk about stop hunting as if big banks are going after us retail traders. I think big banks go stop hunting for stops with smaller institutions. Us retail traders, as rookies, get caught up in that and think they’re against us. Now, I try to look at it as I’m just a flea trying to catch a ride on the back of big banks.

Or…I’m just a squirrel trying to get a nut!
That’s actually what it is. The big banks are the tree, and I’m just picking up acorns. Fine by me.

The big banks are able to do the best and fastest analysis. Its inconceivable that one any of us retail traders could do better or faster fundamental analysis than they can. So if they think some news next week will be positive for USD/JPY, they will be buying it right now.

We’ll never know the details of their analysis, but we cam all see their conclusions on the chart.

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Right. Who knows what kind of technology and algorithms they’ve put together. They’re dealing with super large quantities of currency. They’re not risking that on a whim.

And that’s all we need. The problem arises when we try to outsmart the big banks. It’ll never happen. The only way to win is to go with the flow…that’s what I’m trying to do.

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It is perhaps worth remembering that forex is not just about speculative trading and that the “big banks” are not just trading forex speculatively - or stop-hunting the retail plankton.

Vast amounts of money move in the forex markets as a result of international business transactions and shifts in investment portfolios of various funds like pensions. The pressures on exchange rates from these sources is massive and does not happen in an instance on the release of some item of economic data.

Take, for example, the current response of central banks to inflation pressures. One could trade the USD based on the analysis of this particular fundamental input to dollar strength/weakness, i.e. “Fed watching” and be trading it for months and months.

Take another example: the change in UK Prime Minister. What likely impact will this have on the fortunes of the UK economy? Whatever the outcome, it will not happen in an instance. It will evolve over the coming years and also be influenced by global factors in general like energy prices, etc.

This has nothing to do with being first in the queue for data releases. True fundamentals relate to changes in economic conditions both within an individual country and globally. These changes do not happen in the “hour”, they can last for weeks, months, years even.

If one is seriously going to follow fundamentals (and not just trading the news) then inevitably one is looking at long term price action on long term charts and it is not a question of how quickly you “get the news” at all.

But the problem here is more to do with deciding the optimal levels to enter and exit. The general fluctuations of price require that long term trades have wide stoplosses in order to be placed sensibly and avoid being triggered on pullbacks and consolidations.

Few retail traders have the patience or the skills to truly trade fundamentals. In fact, I am not sure I would even call it trading, it is more in the category of long term investment positioning.


That’s a good point. I think there are sections of big banks that do such short-term trading like day trading, etc. But I think these big whales also play the long game.

That’s why ETFs are so big, I guess. Wealthy people give their money to financial institutions instead of savings accounts at banks. Then the money gets put into an ETF and it stays there for 10 years, just compounding. That’s my guess.

Some people might panic when recessions hit every 10 years or so, but they always come back. Position trading is less profitable, but less risky. Some people don’t want to expose their savings to the risks associated with short-term trading.

They prefer lower risk, and steady 10% profit yearly. Which may not sound like much, but when you’re dealing with millions of pounds/euros/dollars, that’s pretty good. Imagine compounding 10% every year for 5 years. No savings account can compete with that.

Many wealthy people are even investing for their future descendants. Once you have so much wealth, it becomes important to look beyond own life-time and retirement and even children’s well-being. Long-term gets a whole new meaning. With enough money there’s the possibility for independence and a good life for the children of children who aren’t yet even born to the family.

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Right. At that point, you’re not handing over your liquid assets to an investment firm that focuses on day trading. Of course, that could be possible…I wouldn’t know. But I think Blackbox and Edelman think in such long-terms, us little guys dealing with mini-lots would be lost. It’s a whole different animal.

However, there’s a lot to learn from how they manage their money. If you can start acting like the big boys, you can start to see some bigger results.

They don’t just deal in stocks. They deal in collectible cars, art pieces, real estate, etc. Of course, that takes a lot of money. But, diversifying is a simple concept. Leaving all your money in a 401k could be asking for trouble. But 1/3 in 401k, 1/3 in crypto(?), and 1/3 in collectible coins is not a bad idea.

It all starts in educating yourself. And you could do that with a $2 library card.

There are various categories of banks and financial institutions, such as commercial banks and investment banks, and they all have differing areas of expertise and products. Large parts of such institutions are involved in business far removed from just taking speculative short-term currency trading positions. Although frequently traders will have a personal limit for trading alongside their main tasks.

And apart from investments of client funds such as pensions, it is worth remembering the vast volumes of international trade that are daily travelling the globe and paid for in a small range of international currencies bought with a huge range of domestic currencies…that is not speculative, it just happens at certain rate levels that work for the partners involved in the deals (and also why forex is not a so-called zero sum game).

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Good point that there are other aspects to banks’ involvement in business. But which aspects do you mean? Do you mean things like loans? Banks give loans regardless of EUR/USD’s price. Is that the kind of involvement you’re talking about?

Right. It’s just business as usual. When a deal has to get done in another currency, I imagine businesses don’t wait for the EURO to go up a few more pips before exchanging currency. The rate is what it is, and people do business regardless. If the exchange rate is not in their favor, they can probably write the loss off on their taxes.

I can’t imagine the capital resources needed to run a delivery like this!! The ship, the crew, the containers, the products, the fuel…oh boy!!

First up FA is about context in the present and immediate future just as TA is about the past and immed past.

If you look at Usd/Jpy it has been on a very rapid and steady upward course this past year - thus to short it would mean swimming against that current.

Then have a look at cpi US vs Japan - there is a difference.

But then think of context - Japan are jawboning big time re FX intervention - seems that the 145 level is a red line - likewise US cpi appears to have topped whereas Japanese cpi has a way to go.

Tomorrow is a bank hol in Japan, likewise London is out of the game - then Tuesday - if it was me I’d watch and learn - especially around the 145 level

Wed will be a better day for learning FA.

M Douglas talked about trading in the zone - that zone can be thinking about what is likely to happen up ahead - imagine, for example, that Japan cpi comes in maybe 2.9% - then the news algos programmed on numbers will cause a little downtick on price - and then the buy orders at around 140.50 will kick in headed again for 145 - and then will the BOJ intervene?

That is one area, yes. A lot of this type of work is customer-driven and not banks speculating on currency movements - although timing and specific currency levels do play a part in this. For example, if you are a company looking to establish or buy another unit in, say, the Far East then loans, share transactions/issues, interest rate swaps, forward transactions, mergers and acquisitions, profits repatriation, etc will create income flows for your bank from both foreign exchange transactions and consultancy/handling fees income.

A lot of regular international trade has to be financed through exchange rates regardless of what the rate happens to be. For example, importing oil and gas, as we see so much nowadays, has to be purchased regardless of the current costs - and the volumes are enormous. Foodstuffs is another category that is time-sensitive. We cannot starve the population whilst waiting on a good exchange rate to appear! :smiley:

On the other hand, there are wholesale import/export trading houses that only buy and sell whenever rates reach certain attractive levels that present opportunities to push products into consumer markets at competitive prices.

All in all, fundamentals and markets, and their impacts on exchange rates, are extremely complex, interwoven entities that are impossible to read and anticipate in short-term mouthfuls. For example, let’s try and build a picture that includes the combined impact of US v. China trade relations, the distortions of reviving post-Covid supply lines, sanctions against Russia and the possibility of war escalation, rising global inflation and Central Bank policies, US mid-term elections, the destructive ramifications of climate change and the possible climate refugee flows arising from droughts and extreme temperatures.

Actually, I think I will stick to technical analysis of what price is doing right now and leave all the worrying to others! :smiley: Afterall, price movement is just the net result of what everyone else is actually doing - why look at anything else? :smiley:

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Not actually true - it’s a common myth that we write losses off to tax - we trade tax efficiently, but losses are the opposite of what business is about.

We buy and sell - and it involves Eur/Gbp rate. We make exchange decisions based on that cross’s current and likely future rate .

The major difference between retail FX and business is direction - Friday past successful FX retail were ‘buying’ Euro vs Gbp - we were doing the opposite.

Edit: should say that both are thus successful


Sorry, but are you in the US or UK?

In the US you can deduct that exchange rate loss from your profits. I’m not 100% sure, but I believe so. I don’t see why not.

If you are in the UK, is that not allowed?

I’m confused here. Sorry. How do you mean ¨we were doing the opposite¨? Successful retail traders were long on the EURO, and who was doing the opposite?

This is what @SovoS was saying:

Some businesses take advantage of the lower exchange rates and either stock up or sell it at discount prices.

Hence, the mega computers at big banks!
I’m with you on that one. I’ll just stick to my TA and worry about what’s happening for the next few days.

Friday I sold some Euros and bought some pounds and am happy.

Reason is that those same euros were bought with pounds at around 84.00 so as the Euro rises I’ll sell some more.

Most business that use exchange rates in their daily business do similar - hence the oppsite of speculators - and both happy :slight_smile:

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The number was very slightly (0.1) higher at 3.0 - the buy orders kicked in from 143 and up went price - breached the 145 level and then guess what happened - the BOJ Intervened.

The whole way down to 140.50 and stalled right there.

The BOJ have been making it clear recently that 145 is a red line for them (posted that last week).

Now the question is will they continue with intervention - back to context - Central Banks are the top of the FX tree - check out what happened re SNB in Jan 2015.

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