Fundamental and Technical Analysis

Fundamental Analysis tries to understand price moves in the market by analyzing the economic factors that can affect the price of a particular financial instrument, in this case, currencies. Importance is placed on interest rates, trade balance, government policies, market supply and demand, and a myriad of other factors that can affect the intrinsic value of a currency against another currency.

Technical Analysis, on the other hand, states that all the factors whether it be economic, political, or even the effect of weather on the value (or price) of a currency is all factored into the 'market price' of a currency. It is therefore only necessary to study the technical charts, which show all the effects, and all the causes that a "fundamentalist" would study. Thus the study of price movement is of primary importance to a "Technician" to determine where the markets are going.

In reality, both factors are important in determining the value of buying and selling currencies. Whichever school of thought you adhere to, the fact remains that when the perceived value of a currency is over-priced it will be sold, if the perceived value is under-priced it will be bought. If there are more 'sellers' in the marketplace, the price will go down. If there are more 'buyers' than 'sellers' the price will go up.