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Fundamental Analysis (FA) and Technical Analysis (TA) go hand-in-hand in guiding the forex trader to potential opportunities under ever changing market conditions. Both beginner and veteran traders can benefit from the material that follows, but veterans have learned to make one important distinction. They do not spend an inordinate amount of time on the FA side of the equation, primarily because they do not have the resources, access to key information, or the ability to read and assimilate the mountains of data that are made public on a daily basis. 

Large banks, hedge funds, and institutional investors have those resources, but even they have a difficult time arriving at correct predictions on how market forces will evolve. The advice is simply to use FA to determine a general feel for market directions, the interplay of key variables, and existing monetary policy differences to suggest which currency pairs offer the greatest opportunities at a point in time.

Step 1: Study the macroeconomic arena

We must establish the background at the highest level to be able to filter the data and reach at the dynamics of currency pairs at the lowest level. Past behavior of monetary institutions has great relevance to their future choices, which is why we must keep historical data in mind while analyzing the future direction of the markets.

a) Decide on the phase of the cycle

We must first determine the phase of the economic cycle on a global scale. By examining global default rates, international reserve accumulation and bank loan surveys of major economic powers，it is possible to notice the changing phase of the global economic cycle, even though these are second-tier indicators, and are a bit late in signaling the phase of the cycle.

b) Examine tech innovations, political environment, emerging market fundamentals

Upon deciding the phase of the cycle, we will try to determine the dynamics that can enhance productivity and create a period of non-inflationary economic expansion on a global scale. When emerging economies adopt the new technologies of the developed world, and create a new basis of industrial production, productivity will increase, and will sustain growth without creating inflation.

The global political environment also has a great influence on international currency fluctuations for obvious reasons. The high inflation era of the 1970s, for instance, was caused by a number of political events influencing economic fundamentals. Similarly, hyperinflation in Germany in the aftermath of the first World War was also caused by political developments that perverted the natural course of economic events.

Step 2: Study global monetary environment

a) Study the interest rate policies of major global powers

In light of their past behavior we will examine the policy biases of major central banks, such as the Bank of Japan, the Federal Reserve, and the ECB. By studying and clarifying their policy biases,