Fundamental analysis and the economic calendar: what moves currencies

Technical analysis tells you what price is doing; fundamental analysis helps you understand why. You don't need an economics degree: a few clear ideas are enough. And you need to know how to use the economic calendar, because news are the moments when the market makes its fastest moves (and carries the highest risks) for a beginner.

At the centre of everything: central banks and rates

Every major currency has a central bank that governs its monetary policy: the Fed (dollar), the ECB (euro), the Bank of England (pound), the Bank of Japan (yen), the RBA (Australian dollar), the SNB (Swiss franc) and others. Their main tool is the interest rate.

The mechanism, simplified:

• Rising rates: attract capital (higher yields) → the currency tends to strengthen.
• Falling rates: make the currency less rewarding → it tends to weaken.

What really matters, though, are expectations, not only decisions. Markets anticipate: if everyone expects a rate hike and the bank does it, price may not move at all (it was already priced in). It moves when there's a surprise: a bigger hike than expected, or a more aggressive tone than usual in the statement.

The rate differential and the carry trade

If one country has high rates and another low ones, many investors borrow in the low-rate currency (for example the yen) to invest in the high-rate one: the carry trade. The capital flow supports the high-yielding currency while the climate is calm. When fear arrives, these trades close suddenly and can cause abrupt moves (typically the yen strengthens).

The economic data that matter

Among all, in a normal week the ones that count most are: rate decisions, inflation and the US labour market.

How to read the economic calendar

The calendar (you'll find it in the Calendar section of the site) lists events with: time, the currency involved, expected impact (low, medium, high), and three numbers:

• Forecast: the value expected by analysts.
• Previous: the figure from the earlier period (it may be revised).
• Actual: the value just released.

Note that times on the site are shown in the time zone of the chosen language (Italian time on the Italian site, UTC on the English one): always check the label.

How price behaves during news

During a high-impact announcement, things often happen that surprise beginners:

• The spread widens considerably for a few seconds.
• Price jumps in one direction and then often reverses (whipsaw), because algorithms and pending orders react in the first instant, then the market "digests" the meaning.
• Slippage can make your stop execute at a worse price.
• Stops can be "collected" by short, violent moves.

How to behave (as a beginner)

1. Check the calendar every morning and note the high-impact events for the currency you trade.
2. Don't keep risky positions open ahead of an announcement, or reduce size.
3. Don't place pending orders "straddling" the news hoping for a direction.
4. Wait 15-30 minutes after the announcement: when the first move has calmed down, structure becomes readable again.
5. Look at the context: does the figure confirm or contradict the current trend?

Sentiment: risk-on and risk-off

Markets swing between phases of risk appetite (risk-on: people buy stocks and "risky" currencies like AUD and NZD) and phases of aversion (risk-off: they look for havens like the dollar, yen, Swiss franc and gold). Understanding which phase we're in gives an excellent compass: for example in risk-off a rise in AUD/JPY is less likely.

Combining fundamental and technical

A sensible approach for a beginner: use fundamentals as context (which of the two currencies is stronger? are there events coming?) and technicals for timing (levels, entry, stop). For example: ECB more restrictive than the Fed → context favourable to the euro; I look for buys on EUR/USD on pullbacks toward supports, avoiding the hours before key events.

In short

• Central banks and interest rates are the main engine of currencies.
• What counts is the surprise relative to expectations, not the figure itself.
• In the calendar look at forecast, previous and actual, as well as impact.
• During news, spread, slippage and lightning reversals increase: lots of risk, little advantage for the beginner.
• Fundamentals for context, technicals for timing.

Practical exercise

1. Every morning for a week note in your journal the high-impact events for USD and EUR.
2. After the most important announcement write: forecast, actual, price reaction in the first 5 minutes and after 1 hour.
3. Explain in three lines why price moved that way.