Fundamental analysis deals with economic and political events and indicators. The main task of fundamental analysis is to determine the key political and economic factors that influence markets and to forecast how currency exchange rates will respond to changes in these factors. Some of the most important factors are described below.

represents the number of employable individuals (or percentage thereof) who are actively looking for work. Theoretically the unemployed are those members of the active labor force who are out of work. In most cases statistics are based on the number of people claiming unemployment benefits. Unemployment has been a persistent problem in industrial economies during economic slowdowns over the last 200 years. A certain level of unemployment is considered to be unavoidable due to (1) structural changes in an economy ( and inability of the labor force to respond rapidly to new structures of job opportunities) (2) workers who are voluntary switching jobs. This unavoidable level of unemployment is called the natural level of unemployment.

is a general increase in prices in an economy and consequent fall in the purchasing power of money. Economists distinguish between two types of inflation. Demand-pull inflation arises when the economy is trying to spend beyond its capacity to produce. Cost-push inflation is driven by increases in nominal wages and in the prices of non-wage inputs such as raw materials and energy.

measures the combined price of a fixed basket of various consumer goods and services relative to the combined price of the same basket in a reference year. CPI is one of the standard measures of the rate of inflation.

is the excess of government expenditure over government income, which must be financed either by borrowing or by printing money. Keynesians have advocated that governments should run budget deficits in order to stimulate aggregate demand. Monetarists and new classical macroeconomists, however, argue that budget deficits simply stimulate inflation and crowd out private investment. Most economists agree that, at least on average, government should seek a balanced budget and that persistent deficits should be eliminated, either by reducing expenditure or increasing tax revenues.

give a comprehensive notion of the current condition of a country’s economy.

is the exports of merchandise (goods) of a nation less its imports of merchandise (goods). Trade deficit occurs when imports exceed exports, otherwise there is trade surplus. An increase in trade deficit tends to weaken country’s currency.

is one of the measures of the rate of inflation. PPI measures prices of manufactured goods "at the factory gate". PPI is calculated similarly to CPI.

- is one of the core indicators of the current condition of a country’s economy. GDP is the monetary value of all final goods and services produced over a specified period (one year) within the boundaries of a country, whether by domestic or foreign-supplied resources. Economists are usually interested in the real rate of change of GDP to measure the performance of an economy, rather than the absolute level of GDP. Real GDP is calculated by adjusting nominal GDP for inflation or deflation. In other words, to obtain the real GDP nominal GDP has to be divided by GDP deflator (GDP deflator is a price index which shows the change in prices in the economy compared to a base year).

is the quantity of money generated by a country’s financial system. If the demand for money is stable, the widely accepted quantity theory of money implies that increases in the money supply will lead directly to an increase in the price level, i.e. inflation. Here are some measures of the money supply.
M1 - notes and coins in circulation plus private-sector current accounts and deposit accounts that can be transferred by cheque.
M2=M1+ other savings deposits, such as small time deposits, money market deposit accounts and individual money market mutual fund balances.
M3=M2+ large time deposits.
Central banks control money supply through different tools of monetary policy: open-market operations, manipulation of the reserve ratio and the discount rate.