Fundamental analysis · Beginner

What Is Fundamental Analysis

Markets do not react to a 3.4% inflation rate. They react to a 3.4% print when 3.1% was expected.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

In short

Fundamental analysis estimates what an asset should be worth from the economic and financial data that drives it, rather than from its price chart. For currencies that means growth, inflation, employment and central bank policy. For companies it means revenue, margins, debt and cash flow. Markets reprice on the gap between the data and the consensus forecast, so the surprise matters more than the level.

What to remember

Markets trade the surprise, not the number. A 3.4% inflation print against a 3.1% forecast moves the dollar. The same print against a 3.4% forecast does not.
If you cannot state what the market already believes, you have an opinion about an economy rather than a fundamental view.
A valuation gap is not a catalyst. Sterling and the yen both spent years away from fair value because the rate differential overwhelmed it.
Fundamentals set a bias and flag the dates that will test it. They do not tell you where to place a stop.

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Fundamental analysis values an asset from the data that drives it rather than from the shape of its chart. For a currency that means growth, inflation, employment, trade flows and central bank policy. For a company it means revenue, margins, debt and cash flow. The working assumption is that price eventually moves towards what the underlying data justifies, and the working hazard is that "eventually" is not a date you can put in a trading plan.

Why a 3.4% inflation print moved the dollar and a 3.4% forecast did not

Take a CPI release. Economists polled beforehand expect 3.1% year on year. The number lands at 3.4%. The dollar rallies, rate futures reprice, and by the close the two-year yield is 12 basis points higher. Nothing about the economy changed in that second. What changed was the gap between the data and what was already in the price.

Now run the same release with a 3.4% forecast and a 3.4% print. The inflation rate is identical. The dollar barely moves. This is the single most useful thing to understand about macro data, and it is why reading the raw number without the consensus alongside it is close to useless. Markets trade the surprise, not the level. The mechanics of how a currency price actually moves sit underneath this, and the consensus figure is published on every economic calendar before the event.

The corollary matters just as much. A country running 6% inflation that keeps printing above forecast can be the stronger currency story, because every surprise forces its central bank to keep tightening, while a country at 2% printing below forecast is handing its central bank room to cut. The level is the backdrop. The gap against expectations is what reprices.

Two sets of inputs, one method

Macro fundamentals apply to currencies, indices and commodities: GDP growth, inflation, the policy rate and its expected path, employment, the trade balance and the fiscal position.
Micro fundamentals apply to a single company: revenue growth, gross and operating margin, debt relative to earnings, and free cash flow.
Expectations sit on top of both. Consensus forecasts, forward rate pricing and analyst estimates are the benchmark that a release is scored against.

The method is the same in both cases. Establish what the market currently believes, find where your reading of the data differs, and decide whether the difference is large enough and durable enough to be worth risking money on. If you cannot state what the market believes, you do not have a fundamental view, you have an opinion about an economy.

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What it is actually worth on a small account

Fundamentals will not tell you where to put a stop. They operate on a horizon of weeks to quarters, and a retail account sized for 1% risk per trade is usually out of the position long before a macro theme resolves. What they do provide is a filter and a warning system.

The filter: if the policy differential between two currencies is widening and has been for three months, taking short-side trades against that flow means fighting a persistent bid. You can still do it, but you should know you are doing it.

The warning: a scheduled release with a wide expected range is a reason to be flat or smaller, not a reason to guess. Position size is the lever here, and the position size calculator is where the decision gets made rather than felt.

The horizon problem, stated honestly

A fundamental thesis can be correct and still cost you the account. Sterling traded below most estimates of fair value for years after 2016 without reverting. The Japanese yen spent 2022 and 2023 weakening well past every valuation measure because the rate differential overwhelmed them. A valuation gap is not a catalyst. Something has to force the reprice, usually a policy change or a data trend that shifts expectations, and you cannot schedule that.

Three failure modes recur:

Thesis drift. You form a view, the data turns against it, and you reinterpret rather than revise. Write the thesis down with the specific data that would falsify it.
Stale consensus. Using a forecast that has already been revised. Check the estimate on the day, not the one you read last week.
Single-print anchoring. One release is noise. Central banks weigh trends across several reports, and so should you.

One page, updated weekly

Pick the four currencies you actually trade. For each, write down the current policy rate, the direction of the last three inflation prints, the direction of the last three employment prints, and whether the market is pricing the next move as a cut, a hold or a hike. That is one page. Update it weekly.

The output is not a trade. It is a bias, and a list of the dates on which that bias is most likely to be tested. Combine it with a timing method rather than treating it as one, which is the distinction the rest of this category keeps returning to. If you are still building the vocabulary underneath all of this, the forex primer covers the mechanics the macro sits on top of.

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Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

FAQ

What Is Fundamental Analysis: questions

Can fundamental analysis be used for day trading?

Only in a limited way. Fundamental themes play out over weeks and quarters, which is far longer than an intraday position lasts. What day traders do use is the release calendar: knowing that a high-impact print lands at a specific time tells you when spreads will widen and when to be flat. The direction of the underlying theme is rarely tradable within a single session.

What data matters most for currency trading?

The policy rate and its expected path matter most, because the interest rate differential between two currencies is the dominant driver of a pair over medium horizons. Inflation comes second, since it determines what the central bank is likely to do next. Employment is third for the same reason. Trade balance and growth data matter, but they move prices less on the day.

Do fundamentals work for gold and indices?

Yes, with different inputs. Gold responds mainly to real interest rates and to the dollar, since it pays no yield and is priced in dollars. Equity indices respond to the earnings of their constituents and to the discount rate applied to those earnings, which is why index prices are sensitive to bond yields even when company results are unchanged.

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