Fundamentals: rates, inflation and jobs

What it is

Currencies and indices respond to the economy. Interest rates matter most for currencies: a central bank expected to raise rates usually strengthens its currency. Inflation (CPI) and jobs (NFP) matter because they shape what central banks will do next.

For indices, lower rates and strong earnings tend to support prices, while fear ('risk off') sends money into safer assets such as the dollar, yen, gold and bonds.

How to spot it

• Compare what was expected (the forecast) with what came out (the actual).
• A surprise against the forecast moves markets more than the number itself.

How to use it

• Use fundamentals for the bigger bias, and price action for timing.
• Favour trades where the technical direction agrees with the fundamental backdrop.

Common mistakes

• Fighting a strong trend because of an opinion about the economy.
• Treating one data release as the start of a new trend.

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