Making a decision, selling or buying a currency is the main job of a trader. We will try to help you learn how to make decisions about the major currency pairs, relying on a fundamental analysis.
In principle, everything is quite simple. Knowing the state of the economy of a particular state, or knowing information about a specific event associated with this country, you conclude: if the economy goes up, the currency strengthens, then it makes sense to buy. At the same time, you should compare this with the economy of a country whose currency is in second place in a specific pair. If the base currency wins – buy, and vice versa. Below we will describe in more detail about these processes.
Basics of fundamental analysis
EUR / USD
EUR / USD – here the euro is the base currency (in the first place) and, therefore, the “base” for buying or selling this currency pair.
How should you think: if, according to your forecasts, or fresh market analysts, the US economy continues to weaken in the near future, which adversely affects the position of the US dollar, you need to buy a pair of EUR / USD. This means that you expect the euro to grow against the US currency.
If you are inclined to believe that the US economy will not be shaken, and the euro will continue to fall against the US dollar, put on sale EUR / USD.
USD / JPY
USD / JPY – here the basic currency is the US dollar, therefore, its position and it is necessary to analyze.
If there is a forecast to weaken the yen by the Japanese government for the benefit of the export industry, it is better to buy a pair of USD / JPY. Analysts say that the dollar will grow relative to the Japanese yen, so you opened a BUY order for a couple, in which the dollar is in first place, and on the second – the currency that will fall.
If, for example, you own information that Japanese investors convert all their dollars into yen, and this will strike a blow at the US dollar exchange rate, sell the pair USD / JPY, as soon as the dollar depreciates against the Japanese yen.
GBP / USD
In GBP / USD, the pound is the base currency, and is paired with the dollar. Accordingly, if you think that the US economy will give way to the British in terms of growth, put on buying the currency of the country that wins, that is, buy a pair of GBP / USD. This means that you expect the pound to grow against the dollar.
If you are inclined to believe that the economy of Britain will soon be shaken, while the US remains in its position, you must execute a SELL order for the GBP / USD pair. So you sell the pound, thinking that it will depreciate against the US dollar.
USD / CHF
USD / CHF – here the dollar is in the first place and is quoted with the Swiss franc. So, you need to analyze the position of the US currency against the Swiss. If there is information that the Swiss franc is overvalued, it is advisable to execute a BUY order for the pair USD / CHF. Conversely, believing that the weakness of the US housing market will damage the country’s future economic growth, which will weaken the national currency, you must execute the SELL USD / CHF order.