Many traders are using technical analysis in an attempt to predict whether or not currency prices are going to increase, decrease, or stay the same. However, they may make mistakes regarding their trade if they forget about fundamental analysis.
Political and Economic information that is released globally and locally can have a major impact on currency markets. Normally, financial information will have the most impact upon the currency market, but that doesn’t mean that other events can have an impact on the market. Sometimes, setting stop losses is the only way to minimize the damage that can result from such events.
Take, for example, the impact that the British Petroleum oil spill or Hurricane Katrina had upon the currency markets. These events were completely unexpected and had a very large impact upon the foreign exchange markets. In other situations, these events might be planned. But you need to take similar steps to attempt to minimize losses.
Traders also need to pay attention to how unrelated events might impact their trades. For example, an economic situation in one country might actually help that country’s local currency and local economy, but might have a negative impact on other surrounding or interconnected economies. Focusing only on the country affected can result in a loss of capital.
Currency traders trade in pairs. So, if you’re only looking at how an event is going to affect one currency, then you ignore opportunities that might present themselves with your other currency. Also, a news event that affects one of your currencies negatively or positively can have the opposite effect on your other currency.
Focusing on how political and economic information can affect your trade is very important for currency traders. There is no excuse for losses resulting in market changes from information that was made available to you, that you chose to ignore because of a lack of focus on fundamental analysis.