Fundamental analysis in forex trading involves evaluating the economic, social, and political factors that influence the supply and demand of currencies.  

Key to fundamental analysis is the study of economic indicators, such as GDP growth, inflation rates, unemployment figures, and retail sales. These indicators provide insight into the overall health of a country’s economy. For example, higher GDP growth or lower unemployment often strengthens a currency, as it signals a robust economy. Conversely, rising inflation can weaken a currency, as it erodes purchasing power. 

Another critical component is monetary policy set by central banks like the Federal Reserve (Fed) or the European Central Bank (ECB). Central banks influence currency value through interest rate changes and quantitative easing measures. If a central bank raises interest rates, the currency often appreciates as higher rates attract foreign capital. On the other hand, lower interest rates can lead to depreciation, as investors seek better returns elsewhere. 

Geopolitical events such as elections, trade agreements, and international conflicts also play a significant role in currency fluctuations. For example, political instability may lead to a loss of confidence in a country’s economy, causing its currency to weaken. 

Traders who use fundamental analysis often combine it with technical analysis to find optimal entry and exit points. While fundamental analysis focuses on the "why" of market movements, technical analysis looks at the "when."