Important factors in fundamental analysis

Central bank announcements

Central banks can be a cause of significant volatility across most asset classes. Their most important action is to raise or lower interest rates, which can have a big impact on currencies, stocks, indices, and more.

However, fundamental analysts will also watch for new monetary policies (hints that a central bank’s stance may change in the near future), asset purchases, currency revaluations, changes to personnel, and so on.

Economic data

Almost every asset is affected by its wider economy, so fundamental traders will look for signs that an economy is growing or shrinking.

The key indicator of economic growth is gross domestic product (GDP), which calculates the sum of goods and services produced within an economy. However, employment and production reports are also important.

Inflation

Another key economic factor is inflation. Inflation occurs when the purchasing power of a given currency decreases, and central banks usually have the job of keeping it in check (while avoiding deflation).

Inflation doesn’t just affect forex; bonds, commodities, stocks, and indices will all usually experience volatility from it.

Politics

Political change within a country can play out across financial markets. A new president, for example, might make life harder for businesses or invest heavily in new infrastructure.

Geopolitics, too, can be important. For instance, increased conflict in the Middle East can put a strain on the world’s oil supply, driving up its price. As a result, businesses that rely heavily on oil may see their profits weaken.

Natural disasters and seasonality

These two factors may seem unrelated to the markets, but will often drive volatility across multiple assets.

Natural disasters can bring headwinds for businesses and economies, as well as affecting the supply chains of various commodities. Seasonal weather issues can do the same.