Lesson 5: Fundamental Analysis Basics
You'll Learn: How real-world events move currency values like weather affects crops
The Economic Weather Report
Simple Definition:
Fundamental analysis studies how countries' economic health affects their currency value - like checking a company's profits before buying its stock.
Country Comparison Analogy:
Strong Economy = Valuable Currency
(Like a profitable company's stock)
Central Banks = Currency Gardeners
(They 'water' economy with interest rates)
Economic Health Metrics
GDP (Gross Domestic Product)
What it Measures: Total value of goods/services produced
Example Impact:
US GDP grows 3% → USD rises
Inflation (CPI)
What it Measures: Price increases over time
Example Impact:
Eurozone CPI at 5% → ECB may raise rates
Employment Data
What it Measures: Job market health
Example Impact:
Canada adds 100K jobs → CAD strengthens
The Interest Rate Gardeners
US Federal Reserve (Fed)
Current Rate: 5.50%
Last Change: +0.25% (July 2023)
European Central Bank (ECB)
Current Rate: 4.25%
Last Change: +0.25% (Sept 2023)
Interest Rate Effects
Rate Increase
Currency Usually Rises
Like better savings account rates
Rate Decrease
Currency Usually Falls
Like store having a clearance sale
Market-Moving Events
COVID-19 Pandemic
USD surged 10% as investors sought safety
Brexit Vote
GBP fell 15% against USD in 2 days
Russia-Ukraine War
EUR fell 5% vs CHF in 1 week
Practice Analysis
Hypothetical Scenario:
The Fed warns of future rate hikes while EU unemployment rises.
What happens to EUR/USD?