Fundamental analysis focuses on the economic and financial factors that influence market prices. While technical analysis looks at what the price is doing, fundamental analysis looks at why it may be moving.
For traders, understanding fundamentals helps provide context for market behaviour, particularly during major news events. Today, we will explain the main drivers of market movement, including interest rates, inflation, central banks, economic data and news releases. We will also explain when fundamentals tend to matter most and when their impact is more limited.
Interest Rates and Why They Matter
Interest rates are one of the most important drivers of financial markets. They influence borrowing costs, spending, investment, and currency values.
When a central bank raises interest rates, it usually aims to control inflation by slowing economic activity. Higher rates can make currency more attractive to investors, as returns on savings and bonds increase. When rates are lowered, borrowing becomes cheaper, which can stimulate spending and investment.
Markets often react not only to the rate decision itself, but also to expectations about future changes. This is why prices can move even when rates remain unchanged.
Inflation and Purchasing Power
Inflation measures how quickly prices for goods and services are rising. It affects purchasing power and is a key factor in central bank policy decisions.
High inflation reduces the real value of money and can lead central banks to raise interest rates. Lower inflation may give central banks more room to keep rates stable or reduce them.
For trades, inflation data is important because it influences expectations about future interest rate decisions. These expectations can have a strong impact on currencies, stock markets and bond markets.
The Role of Central Banks
Central banks are responsible for managing monetary policy in their economies. This includes setting interest rates and, in some cases, using additional tools to support financial stability.
Statements, press conferences and policy guidance from central banks are closely watched by markets. Even small changes in language can affect expectations and cause price movement.
Markets do not only react to what central banks do, but also to what they are expected to do next. This is why forward guidance and economic outlooks are often just as important as the decisions themselves.
Economic Data and Market Reactions
Economic data provides regular updates on the health of an economy. Common examples include employment figures, economic growth, inflation reports and business activity surveys.
Some data releases tend to have a stronger impact than others, especially when they differ from market expectations. When results are better or worse than expected, markets may adjust prices quickly to reflect the new information.
Traders often use an economic calendar to track important releases and manage risk around these events, as volatility can increase significantly during announcement periods.
New Releases and Unexpected Events
In addition to scheduled data, markets also react to unexpected news. This can include geopolitical developments, policy changes, corporate announcements or sudden economic shocks.
These events can cause rapid price movement, particularly in the short term. While technical analysis may guide normal trading decisions, news events can override technical levels and create unpredictable conditions.
For this reason, many traders reduce risk or avoid trading during major news events if volatility becomes difficult to manage.
What Fundamentals Matter Most and When They Do Not
Fundamentals tend to matter most during major economic events, central bank decisions and periods of market uncertainty. They are especially important for understanding longer-term trends and shifts in market direction.
However, in shorter timeframes, price often moves due to liquidity, positioning and technical factors rather than immediate fundamental changes. This is why traders frequently combine fundamental and technical analysis rather than relying on one alone.
Fundamentals provide context and direction. Technical analysis helps with timing and risk control.
Using Fundamental Analysis as a Trader
Fundamental analysis does not require predicting every economic outcome. Instead, it helps traders understand the environment in which markets are operating.
A practical approach is to be aware of major economic drivers, track key events and adjust risk around high-impact news. This allows traders to avoid unnecessary surprises and make more informed decisions.
At Samuel and Co Trading, fundamental analysis is taught as a tool for understanding market context, not as a guarantee of market direction. The emphasis is on combining awareness of economic factors with structured risk management and disciplined execution.
Conclusion
Fundamental analysis explains many of the forces that move financial markets, including interest rates, inflation, central banks and economic data. These factors shape long-term trends and often drive major market moves.
At the same time, not every price movement is caused by new information. Understanding when fundamentals matter and when technical factors dominate helps traders approach the markets with more realistic expectations.
Used correctly, fundamental analysis adds valuable context and supports better risk-aware decision-making.
