Example of a Fundamental Forex Trade

Example of a Fundamental Forex Trade

Scenario: USD Strengthens After Strong Non-Farm Payroll (NFP) Report

Step 1: Identify the Fundamental Catalyst
The U.S. releases its **Non-Farm Payroll (NFP) report**, showing **higher-than-expected job growth** and **low unemployment**. This signals a **strong economy**, increasing the likelihood that the **Federal Reserve (Fed) will raise interest rates**.  

➡ Impact: A potential increase in **USD strength** because investors expect higher interest rates, making the U.S. dollar more attractive.

Step 2: Choosing the Currency Pair
Since the USD is expected to **strengthen**, traders look for a **weaker counter currency**.  

Currency Pair: EUR/USD
- The **euro** may weaken compared to the **dollar** if the European economy shows weaker growth.  
- Traders decide to **sell EUR/USD**, expecting the pair to drop in value.

Step 3: Placing the Trade
- Sell EUR/USD at 1.1000** (entry price).  
- Set Stop-Loss at 1.1050** (to limit potential losses if the market moves against the trade).  
- Set Take-Profit at 1.0800** (targeting a stronger USD).  

Step 4: Trade Outcome
- After the **positive NFP report**, investors buy USD.  
- **EUR/USD falls from 1.1000 to 1.0800**.  
- The trader **closes the position** and makes **200 pips profit**.  

Key Takeaways
✅ Fundamental analysis relies on **economic data and central bank decisions**.  
✅ Major reports like **NFP, inflation, and GDP** create big price movements.  
✅ Combining **fundamental & technical analysis** improves trade accuracy.  
✅ Always use **risk management tools (stop-loss, position sizing)**.