How to Analyse the Forex Market

Forex Market Analysis for South African Traders

Forex market analysis is the process of studying currencies before deciding whether to buy, sell or avoid a currency pair. It combines economic data, central-bank policy, price charts, market positioning and risk calculations.

The global foreign exchange market averaged approximately $9.6 trillion in daily turnover during April 2025. However, a large market does not make individual trades predictable. Prices can move rapidly when inflation, employment figures, interest-rate decisions or political developments differ from market expectations.

South African traders may analyse international pairs such as EUR/USD and GBP/USD, as well as rand pairs including USD/ZAR, EUR/ZAR and GBP/ZAR. Rand analysis requires both global and South African information because ZAR reacts to US dollar direction, commodity prices, domestic economic data, fiscal expectations and general appetite for emerging-market risk.

Forex analysis cannot guarantee the next price movement. Its purpose is to convert an unstructured opinion into a scenario with defined conditions, entry criteria, invalidation and risk.

Three Types of Forex Market Analysis

Most forex market analysis falls into three categories: fundamental, technical and sentiment analysis. They answer different questions and are most useful when combined rather than treated as competing systems.

How the Three Methods Work Together

Complete Forex Analysis Workflow

The following workflow can be used for forex analysis in South Africa before each trading session.

Step 1: Review the Economic Calendar

Check whether high-impact data is scheduled for either currency in the pair. For USD/ZAR, relevant events can include South African inflation, SARB decisions, US CPI, Federal Reserve decisions and US employment data.

Step 2: Compare the Two Economies

A currency pair always compares two currencies. Do not analyse the base currency alone.

For EUR/USD, compare the Eurozone with the United States. For USD/ZAR, compare US monetary conditions and dollar sentiment with South African rates, domestic risk and emerging-market flows.

Step 3: Establish the Higher-Timeframe Trend

Open the weekly and daily charts. Determine whether price is producing higher highs and higher lows, lower highs and lower lows, or a sideways range.

Step 4: Mark Important Price Zones

Mark recent swing highs, swing lows, breakout areas, previous support and resistance, and the prior day or week’s high and low.

Step 5: Measure Current Volatility

Use recent candles or Average True Range to estimate normal movement. A stop that is much smaller than ordinary volatility may be triggered by market noise.

Step 6: Create Bullish and Bearish Scenarios

Do not begin with “the market must rise.” Write conditions for both directions.

Step 7: Calculate Risk Before Entry

Determine the stop distance, acceptable monetary loss and corresponding position size before placing the order.

Step 8: Decide Whether to Trade

“No trade” is a valid result of analysis. Avoiding a position when conditions are unclear is part of risk management.

How to Select a Currency Pair for Analysis

Beginners often switch between too many currency pairs. A more structured approach is to create a small watchlist and choose pairs with a clear reason for possible movement.

Step-by-Step Pair Selection

1. Open a currency heat map or compare the percentage performance of major currencies.
2. Identify one relatively strong currency and one relatively weak currency.
3. Check whether an economic event is scheduled for either currency.
4. Review the spread and normal volatility.
5. Open the daily chart and reject pairs with unclear structure.
6. Select no more than two or three pairs for detailed analysis.

Example Watchlist for South Africa

Fundamental Forex Analysis Step by Step

Fundamental analysis evaluates economic and policy differences between the two currencies in a pair.

Step 1: Compare Central-Bank Policy

Interest rates influence the potential return available from holding a currency. More importantly, traders react to the expected future direction of rates.

A central bank can leave rates unchanged and still move its currency if its statement is more hawkish or dovish than expected.

Step 2: Analyse Inflation

Compare the actual inflation figure with the market consensus and previous result.

Step 3: Analyse Employment

Employment data influences consumer spending, wages and central-bank policy.

For the United States, traders commonly monitor non-farm payrolls, unemployment and average hourly earnings. For South Africa, unemployment and labour-market conditions form part of the broader domestic outlook.

Step 4: Review Economic Growth

GDP, retail sales, industrial production and purchasing managers’ indices provide evidence of economic momentum.

A growing economy does not automatically produce a stronger currency. If strong growth increases imports or inflation, the response may be more complicated.

Step 5: Consider Political and Fiscal Risk

For USD/ZAR analysis, fiscal policy, debt expectations, government stability, electricity supply, infrastructure and investor confidence may affect the rand.

Step 6: Build a Currency Score

This score is not an objective forecasting model. Its purpose is to force the trader to record the reasoning instead of relying on an impression.

How to Use a Forex Economic Calendar

An economic calendar displays scheduled releases, their expected importance, previous results, market consensus and actual figures.

Economic Calendar Fields

Example: Analysing an Inflation Release

Instructions Before a High-Impact Event

1. Mark the publication time on the chart.
2. Check whether the position will still be open at that time.
3. Review the current spread.
4. Decide whether to close, reduce or retain the position.
5. Do not increase leverage simply because a large move is expected.
6. Expect possible slippage and spread widening.
7. Wait for the first reaction to settle if no pre-news strategy exists.

Technical Forex Analysis Step by Step

Technical analysis studies price behaviour to identify market structure, trends, levels and potential trade locations.

Step 1: Identify Market Structure

Step 2: Mark Swing Points

A swing high is a visible peak followed by lower prices. A swing low is a visible trough followed by higher prices.

Use major, obvious swings rather than marking every candle. Too many levels make the chart difficult to interpret.

Step 3: Draw Support and Resistance Zones

Draw areas rather than exact one-pixel lines. Price can briefly move beyond a level and still respect the broader zone.

Step 4: Measure Momentum

Compare the size and speed of bullish and bearish candles. A breakout with large candles and strong follow-through has different characteristics from a slow move on small candles.

Step 5: Wait for a Trigger

A possible trigger can include:

• a candle closing beyond resistance;
• a rejection wick at support;
• a break and retest;
• a moving-average pullback;
• a change in market structure;
• momentum returning after consolidation.

Step 6: Define Invalidation

The invalidation level is the price at which the original analysis is no longer valid. It should determine the stop-loss, not the amount the trader wants to risk.

Step 7: Compare Risk and Potential Return

Reject trades where the logical target is too close to justify the stop distance and trading costs.

Multiple-Timeframe Forex Analysis

Multiple-timeframe analysis means examining the same currency pair on several chart intervals. Each timeframe has a separate purpose.

Example: EUR/USD Multiple-Timeframe Analysis

Common Timeframe Error

A trader may identify a bullish pattern on a five-minute chart while the daily chart is falling sharply into major support. The small pattern may fail because it is being traded without broader context.

How to Draw Forex Support and Resistance

Practical Instructions

1. Start on the daily chart.
2. Zoom out until at least several months of price action are visible.
3. Mark obvious areas where price reversed more than once.
4. Use zones covering candle bodies and repeated wick reactions.
5. Move to the 4-hour chart and refine the zones.
6. Remove levels that no longer influence current price.
7. Keep only the levels relevant to the planned trade.

Example Level Selection

Support Becoming Resistance

After price breaks below support, the same area may act as resistance when retested from below.

How to Use Forex Indicators

Indicators should answer a specific question. Adding several indicators that measure the same information does not necessarily improve analysis.

Moving Averages

Moving averages smooth historical prices and help identify direction.

Relative Strength Index

RSI measures recent momentum on a scale from 0 to 100. Readings above 70 are often described as overbought and readings below 30 as oversold.

MACD

MACD compares moving averages to assess trend and momentum. Crossovers may help confirm changes, but the signal is calculated from past prices and may arrive late.

Bollinger Bands

Bollinger Bands expand when volatility increases and contract when volatility falls. A band touch alone is not a reversal signal.

Average True Range

ATR measures recent price movement without predicting direction. It can help assess whether a stop is realistic.

Forex Sentiment Analysis

Sentiment analysis assesses how traders and investors are positioned or reacting to risk.

Commitments of Traders Report

The CFTC’s Commitments of Traders report summarises positions in reportable futures and options markets. Currency traders often analyse the Traders in Financial Futures report.

How to Read COT Data

1. Select the relevant currency futures contract.
2. Review long and short positions for leveraged funds or asset managers.
3. Calculate the net position: long contracts minus short contracts.
4. Compare the current net position with recent weeks.
5. Compare it with multi-year extremes.
6. Use the result as background, not as an exact entry signal.

Limitations of COT

• The positions refer to futures, not directly to a retail CFD market.
• The report is weekly rather than real time.
• A large long position does not reveal the entry price.
• Extreme positioning may reflect a strong trend rather than an immediate reversal.
• Categories contain participants with different objectives.

Risk-On and Risk-Off Sentiment

The South African rand is often sensitive to global risk appetite. During risk-off periods, investors may reduce exposure to emerging-market currencies and prefer liquid currencies such as USD.

During improving risk appetite, higher commodity prices and stronger emerging-market flows may support ZAR.

Complete USD/ZAR Analysis Example

The following USD/ZAR analysis is hypothetical and demonstrates the process rather than providing a current trade signal.

1. Fundamental Background

• US inflation is higher than expected.
• The Federal Reserve indicates rates may remain elevated.
• Global equity markets are falling.
• Commodity prices are weakening.
• South African domestic data is softer than expected.

These conditions may support USD and pressure ZAR. The initial fundamental bias is therefore bullish USD/ZAR.

2. Weekly Chart

USD/ZAR remains above a long-term support zone between 17.60 and 17.80. The broader weekly structure has not broken down.

3. Daily Chart

Price has formed a higher low at 17.85 and is approaching resistance around 18.40.

4. Four-Hour Chart

The pair consolidates between 18.20 and 18.40. A breakout has not yet occurred.

5. Trading Scenarios

6. Hypothetical Buy Trade

7. Events That Could Invalidate the Trade

• US inflation falls unexpectedly;
• the Fed becomes more dovish;
• global risk sentiment improves sharply;
• commodity prices rally;
• positive South African fiscal or economic news supports ZAR.

EUR/USD Technical Trade Example

Market Context

• Daily price is above the 200-day moving average.
• The 50-day moving average is rising.
• EUR/USD has pulled back toward previous resistance at 1.1000.
• The previous resistance may now act as support.

Possible Entry Plan

Outcome A: Target Reached

At 0.10 lot, the approximate pip value is $1. A 100-pip favourable movement creates an approximate gross profit of $100.

Outcome B: Stop Reached

A 50-pip adverse movement at approximately $1 per pip creates an approximate gross loss of $50.

Outcome C: Entry Cancelled

If EUR/USD closes below 1.1000 before producing the bullish trigger, the trader cancels the planned buy rather than entering because of the original forecast.

GBP/USD News Analysis Example

Assume UK inflation is due at 09:00 SAST and the market expects annual CPI to fall from 3.4% to 3.1%.

Scenario 1: Higher-Than-Expected CPI

Scenario 2: Lower-Than-Expected CPI

Scenario 3: Mixed Report

Headline CPI may fall while services or wage-related inflation remains high. GBP/USD may initially move in one direction and then reverse as traders analyse the details.

News Trading Instructions

1. Record the support and resistance levels before the release.
2. Do not enter simply because the headline appears positive or negative.
3. Compare actual, consensus and previous readings.
4. Check core or underlying components.
5. Wait for the spread to normalise.
6. Use a closed candle as confirmation when appropriate.
7. Reduce position size because slippage risk is higher.

Forex Position Size and Risk Calculation

Position size should be calculated from account risk and stop-loss distance.

Example 1: EUR/USD Position Size

Example 2: Wider Stop

Example 3: Risk in Rand

Risk Table

Forex Trading Plan Template

A trading plan converts analysis into written rules. The following template can be copied for each planned position.

Blank Trading Plan

Forex Trading Journal Example

A trading journal allows a trader to compare the planned trade with what actually happened.

Weekly Journal Review

1. Calculate total profit and loss.
2. Calculate the percentage of trades that followed the plan.
3. Separate strategy losses from execution mistakes.
4. Identify the most profitable session and pair.
5. Identify repeated errors.
6. Change only one or two rules at a time.

How to Analyse the Forex Market with FxPro

Step 1: Start on the Official FxPro Website

Visit the official FxPro website and register or log in. Open FxPro Direct and select a compatible trading platform from the platform section.

Step 2: Open a Demo or Live Account

A demo account can be used to practise chart analysis, position sizing and order placement without risking real funds.

Step 3: Add Currency Pairs to Market Watch

1. Open the instrument or Market Watch panel.
2. Search for the required symbol, such as EURUSD or USDZAR.
3. Add the symbol to the watchlist.
4. Open its chart.
5. Confirm the contract specification before trading.

Step 4: Set Up the Chart

1. Select candlestick view.
2. Open the daily timeframe.
3. Add the 50- and 200-period moving averages if required.
4. Mark support and resistance.
5. Add RSI or ATR only when they serve a defined purpose.
6. Save the layout as a template.

Step 5: Open the Economic Calendar

Filter events by:

• date;
• country or currency;
• importance;
• local timezone;
• event category.

FxPro’s market tools include an economic calendar with event time, importance, previous data, consensus and actual readings, as well as a currency heat map and market dashboards.

Step 6: Calculate the Trade

Before placing the order, determine:

• entry price;
• stop-loss;
• take-profit;
• stop distance;
• value per pip;
• position size;
• required margin;
• maximum monetary loss.

Step 7: Place the Order

1. Choose buy or sell.
2. Enter the calculated volume.
3. Add stop-loss and take-profit.
4. Review the live spread.
5. Review the required margin.
6. Confirm the order only after checking every field.

Step 8: Manage the Position

Do not change the trade simply because price moves slightly against the entry. Follow the management rule written before opening the position.

Common Forex Analysis Mistakes

Using Too Many Indicators

RSI, stochastic and MACD all use historical price information. Combining them may create the appearance of confirmation while repeating similar data.

Ignoring the Second Currency

EUR/USD can fall because EUR weakens, USD strengthens or both occur simultaneously. Analysing only the euro gives an incomplete view.

Trading Before Reading the Calendar

A technically attractive setup may fail within seconds when inflation, payroll or a central-bank decision is released.

Drawing Too Many Levels

If every minor swing becomes support or resistance, the trader can justify any decision after the event.

Entering Before Candle Close

A candle that appears to break resistance can return below the level before the period ends.

Moving the Stop-Loss

Moving a stop farther away increases the planned risk and invalidates the original position calculation.

Confusing Analysis with Prediction

Professional analysis defines conditions and probabilities. It does not claim certainty about the next candle.

Changing Strategy After Every Loss

A single loss does not prove that an analysis method is invalid. Strategies should be evaluated across a meaningful sample of consistently executed trades.

Taking Correlated Positions

Buying EUR/USD and GBP/USD while selling USD/CHF can create three similar positions against USD rather than three independent trades.

Ignoring Trading Costs

Spread, swap, commission, slippage and currency conversion can turn a small gross profit into a net loss.