Fundamental analysis mainly analyzes economic and political changes in the market. There are certain factors in foreign exchange that affect exchange rates. In fact, these factors affect the supply and demand curve of an economy or the global economy, which in turn impresses exchange rates. In this article, I will talk about the disadvantages of only using fundamental analysis.
Usually when the news is published, everyone will have the same idea of the markets, creating a herd mentality. As everyone is talking about buying, the probability is that they also join the trend. But those who knew what was going on chose to stick with what they still believe, and that’s what the chart tells them.
Taking into account the interest rates of an economy; you accept the volume of international trade you do with other economies. Economic news is often distorted by the fact that it does not always take certain key data into account, because sometimes some countries wanted to show that they are doing well in good times and in good times during bad times, which are linked to political factors. They are not 100% reliable and can only serve as a guide to your technical analysis.
A knowledgeable trader will use long-term fundamentals, as well as trends identified with techniques to establish a trade bias. Short-term news, such as non-farm wages (NFPs), can often develop sudden market reactions, creating false signals that mislead traders about a change in market sentiment. It is only after the dust settles that you can see the market trend.
Since only fundamental forex analysis does not provide a complete picture of your trading decision, it is always advisable to combine it with technical analysis to help you in your decision making.