Fundamental analysis uses economic indicators, geo-political events and other factors that affect the economy to determine the direction of a currency's value, if it will rise or fall.

Economic Indicators are statistical data showing economic growth rates and general trends in the economy such as retail sales and employment. Those with predictive value are leading indicators; those occurring at the same time as the pertaining to economic activity are coincident indicators; and those that only become apparent after the activity are lagging indicators.

Leading Indicators are statistics considered to precede changes in economic growth rates and total business activity. A leading indicator is an economic gauge that records changes before the overall economy experiences them. They are used to forecast financial and economic trends. A good example of a leading indicator would be the housing market, where developments in housing tend to precede developments in the rest of the economy, expanding before more wide spread economic growth, and contracting before economic recession.

Coincident Indicators attempt to track the current health of the economy. It measures changes as they are taking place unlike leading indicators which tries to forecast future economic conditions and lagging indicators which are delayed. Some examples of coincident indicators are manufacturing sales or personal income.

Lagging Indicators is a type of economic indicator that changes after the overall economy has changed.

Industrial Production measures in volume the output produced by the manufacturing, mining, and utility sectors. From a fundamental point of view, high or rising Industrial Production figures suggest increased production and economic expansion. It also reflects the strength of the economy and the specific currency. Foreign Exchange traders use this economic indicator as a potential trading signal but because of its volatility, the report has limited market impact.

Industrial Production measures in volume the output produced by the manufacturing, mining, and utility sectors. From a fundamental point of view, high or rising Industrial Production figures suggest increased production and economic expansion. It also reflects the strength of the economy and the specific currency. Foreign Exchange traders use this economic indicator as a potential trading signal but because of its volatility, the report has limited market impact.

Capacity Utilization measures the extent to which the US manufacturing companies for example make use of their installed productive capacity (factories and machinery). The term refers to the maximum amount of output a plant can generate under normal business conditions. Capacity Utilization reflects overall growth and demand in the economy, rising when the economy is vibrant, and falling when demand softens. In general, capacity utilization is not a major indicator for the foreign exchange market.

However, there are instances when its economic implications are useful for fundamental analysis. A normal figure for a steady economy is 81.5%. If the figure reads 85% or more, the data suggests that the industrial production is overheating and that the economy is close to achieving a full capacity.

Factory Orders measures the total change in orders placed at domestic manufacturers. The figure gives a picture of the strength of demand for a country's industrial products. Factory orders are an early indicator of the overall level of spending in the economy, and spending drives economic growth. Although a rising Factory Orders alone has limited significance for Foreign Exchange traders, t may however put upward pressure on the currency if higher orders are due to greater demand aboard.

Non-durable goods include food, clothing, light industrial products and other products which are designed for maintenance of durable goods. Durable goods on the other hand are manufactured goods with a life span of more than three years that is why they are typically more expensive. Examples consist of automobiles, appliances, furniture, hard goods, jewelry and toys. They may also be divided into four major categories namely primary metals, machinery, electrical machinery and transportation.

This data is fairly important to the Foreign Exchange market because many consider durable goods orders as a leading indicators for business investment and consumer consumption. Given that durable goods cost more than non-durable goods, a rise in this indicator goes to show that consumers are more willing to spend thus a high a good figure is generally bullish for the domestic currency.

Business Inventories are unsold goods held by manufacturers, wholesalers and retailers. They may also be defined as items produced and held for future sale. This indicator is reliable in showing economic turning points. A significant reduction in inventories may imply rapid growth because stockrooms are empty and so they need to be replenished, which in turn may trigger an increase in production.

Inventories are useful when analyzing total business sales. The economy may be weakening once inventories increases and business sales fall. If this happens, retailers will be forced to cut back on their wholesale orders. Wholesalers fearing that inventories might swell, are also forced to slow down and may even close down production.

The Business Inventories figure is released together with the Advanced Retail Sales. Advanced Retail Sales' lag time is merely two weeks while Business Inventories features a lag time that is three times as long. That is why importance of this indicator for Foreign Exchange is limited because it is an indicator that follows rather than leads the overall pace of the economy.

GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens even if they are working overseas, minus income of non-residents located in that country. The GNP measures the economic performance of the whole economy. At the macro scale, this indicator consists of the sum of consumption spending, investment spending, government spending and net trade.

The GDP refers to the sum of all goods and services produced within a country either by foreign or domestic companies. This indicator provides key insight as to the driving forces of the economy and is the most comprehensive overall measure of economic output.

A portion of the GDP that is contributed by the consumption of consumer goods and services. Consumption is made possible by the consumer's personal and discretionary income which is why these goods and services are targeted towards individuals to reflect household expenditures rather than corporate spending.

Changes in consumer spending can also be used to measure economic growth but it is not as reliable because individuals can increase consumption without necessarily having an increase in income. The decision by consumers to spend or to save is psychological in nature. Consumer confidence is also measured as an important indicator of the propensity of consumers who have discretionary income to switch from saving to buying.

Investment or gross private domestic spending consists of fixed investment and inventories.

Government spending represents public expenditure by one country's government. This is very influential in terms of size and its impact on other economic indicators. The government budget on spending is determined by fiscal policy making it very predictable that is why it seldom moves the market upon release.

The trade balance of one country reflects the difference between exports and imports of goods and services. The trade balance gives valuable insight on the country's currency because it is one of the biggest components of the Balance of Payment. A positive balance of trade occurs when exports exceed imports while a negative balance of trade also known as trade gap occurs when imports exceed exports. The release of the Trade Balance data is deemed to be very significant in forecasting trends in the Forex Market.

Traders monitor the development of inflation very closely because higher interest rates tend to support the local currency.

Producer Price Index or PPI measures price changes that the producers charge for goods and services. It includes the manufacturing, mining and agricultural sectors but does not include imported goods, services and taxes. PPI is a leading indicator of inflation because producers tend to pass on higher costs to consumers as higher retail prices. In other words, inflation may indicate a decline in the purchasing power of a country's currency because each dollar buys fewer goods and services.

Consumer Price Index or CPI measures the acceleration of price for a fixed market basket of goods and services. The CPI data compiles purchases people make on a daily basis like foods, shelter, clothing, fuel, transportation and medical services. Like the PPI, CPI is also one of the leading indicators of inflation.

Higher CPI indicates that prices of the basket as a whole have increased and it now requires more local currency to buy the same basket of goods. Falling inflation will prompt the central bank to lower interest rates while excessive inflation may force them to consider raising interest rates.

Employment indicators are significant to the Foreign Exchange market because the data affects periods of economic transition which can be divided into expansion and contraction. It is vital in determining the health of the economy and the maturity of the business cycle.

The rate of employment measures the health of the economy. If the number of new employment surges, it may suggests higher spending potential and budding inflation pressures, which the RBA will counter by increasing interest rates.

The Unemployment Rate refers to the percentage of people currently out of work, but who actively seeking employment and willing to work. While this is a lagging economic indicator, the figure gives clearer picture on the labor market conditions. When people focus on the health and recovery of the job sector, employment is the last economic indicator to rebound. It also gives a snapshot of the economy's production, private consumption, workers' earnings, and consumer sentiment. Lower unemployment rate means that there are more individuals with jobs and income which then leads to higher consumer spending and economic growth. In contrast, high levels of unemployment may suggest lower incomes, lower spending and economic stagnation.

The Non-Farm Payroll Rate figure is the difference between the total labor force and the employment labor force divided by the total labor force. This is actually the most commonly used employment figure compared to the monthly unemployment rate.

In the Forex market, traders usually monitor the unemployment rate, manufacturing payrolls, non-farm payrolls, average earnings and average workweek. But in reality, the most significant employment figures are manufacturing and non-farm payrolls followed by the unemployment rate.

The Employment Cost Index provides a comprehensive analysis of worker compensation, including wages, salaries and fringe benefits and measures changes in employee compensation in the form of wages and benefits.

Consumer spending indicators are important in the Forex market because it displays consumer demand and their business sentiment towards the market.

Retail Sales which is released monthly is the measurement of all goods sold at retail outlets. Retail sales are closely watched by Forex traders because this indicator demonstrates the strength of consumer demand and confidence if the consumer has enough discretionary income. This indicator is also used to forecast overall strength o the economy as well as the currency. Rising sales may indicate growth and but higher consumption can also lead to inflationary pressures.

The report includes retails sales of nine groups which are automotive, furniture and electronics, building supplies, food and beverages, pharmaceuticals, clothing and accessories, general merchandise, and miscellaneous.

A gauge of mood of the consumers which may either be bullish or bearish. This is very important in the Forex market because individuals are the backbone of the economy. When the figure increases, traders may conclude that consumers have a positive outlook on inflation, employment, spending and other relevant factors and this in turn may appreciate the currency.

Forex traders do not normally follow this economic indicator despite the importance of the auto industry in term of production and sales. Car manufacturing has become increasingly internationalized with American cars being assembles outside the United States and Japanese and German cars being assembled within the United States. But because of its confusing nature, auto sales figure cannot be easily analyzed by forex traders.