To be a successful Forex trader you need to be able to analyze the foreign currency trading market and predict which way it is going to move. There are 2 types of analysis to accomplish this: technical and fundamental.
With technical Forex analysis the history of currency price movements is analyzed to predict future prices. Fundamental analysis, on the other hand is studying the nation's overall economic health or "big picture" analysis. The idea with fundamental forex analysis is that the nation's economy will affect both supply and demand for its currency and this will then affect the price of its currency.
As an example let's use the United States. If the US economy is healthy and on the rise then the dollar would also be expected to rise and Forex traders would invest in it heavily. Studying the health of the economy is not always easy however. Many factors need to be considered and two Forex traders, with the same numbers, may interpret the data differently. Some of the factors considered are: interest rate, unemployment rate, gross domestic product (GDP) and consumer price index. The relation of the numbers compared to what has been forecasted is the trick. For example, a hike in interest rates may not have a marked impact if that was expected. But if the interest prices were expected to stay the same and there was an increase instead, this could have a large impact on Forex prices.
