Fundamental analysis, or a fundamental view of currency markets, is widely misunderstood. It is not simply about the economic conditionsfacing a country.
Fundamental analysis, when properly understood, contains sentiment analysis. Let us state this another way. Fundamental analysis deals with economic forecasts and expectations about economic metrics such as CPI (consumer price index), GDP (gross domestic product), employment, and so on. These fundamental expectations involve longer and medium-term durations.
The exact mix of expectation durations is, in fact, always changing.Sometimes expectations of economic outcomes a year ahead may impact current price action. At other times,the immediate geopolitical and global economic conditions have an immediate impact.
In a way, this view of a fundamental structure behind currency movements is similar to recent discoveries in physics of the Higgs boson field.In that major discovery, it has been proven that electrons get their mass as they go through the Higgs boson field. In currency trading we can say
that prices get their direction and strength of direction as they go through a field filled with fundamental expectation forces. Sentiment is the bridge and transmission channel, between long-term and short-term economic expectations that directly act upon the price.
Within the rubric of fundamental analysis, sentiment analysis focuses on current expectations about whether prior fundamental forecasts are correct. In other words, sentiment is the measure of the immediate change in expectations, caused by data releases, geopolitical crises, or any
other information shock that reaches the markets. Sentiment is about both long-term and short-term expectations.
Sentiment is how the market expresses emotions. Emotions are always about something and in currency markets emotions are generally about risk and uncertainty. Traders,therefore, need to diagnose what the market movements are about.This contrasts greatly with the current, dominant technical view of markets and currency .
Sentiment is how the market expresses emotions. Emotions are always about something and in currency markets emotions are generally about risk and uncertainty. Traders,therefore, need to diagnose what the market movements are about.This contrasts greatly with the current, dominant technical view of markets and currency .
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