When doing fundamental analysis, new traders try to read every piece of news and look at every economic indicator to decide what to trade. Doing it this way, they often get some paralysis from too much information and end up doing nothing and get discouraged because their hard work doesn’t pay off.

Well, you don’t need to know everything, but just focus on what really matters to the markets. To simplify the process, it’s best to look at three key things to filter out the noise.

· CONTEXT: Where we are at regarding the big macro stuff like monetary policy, growth, inflation, rates etc. For example, if there's an expectation of a slower global growth in the future, then bad data from the U.S. can be actually positive for the dollar, because it acts as a safe haven. If, on the other hand, there's an expectation of a fast or stable global growth, then good data from U.S. can be actually negative for the dollar, because amid a positive risk sentiment traders and investors will take higher risks and sell the dollar.

· MARKET FOCUS: What is the prevailing theme at the moment? Let’s say the market focus is on the Fed’s monetary policy because inflation is too high and how the Fed is going to act to get inflation under control. In this case you need to look at what can cause the Fed to be even more aggressive in its actions or what can make it take an easier approach. The market can also be focused on something in the future and discount any bad news or data that do not change such view. If the market is focused on a particular thing because it can affect everything else, then all the rest is barely noticed.

· WHAT’S NEXT: Always look for what's coming next because the market is forward-looking. A recent example of the market pricing in a future outcome can be the December FOMC meeting. Back in November 2021, the Fed tapered its QE and signalled that it could adjust the pace based on the economic developments. After that we got a really hot CPI report and the market suddenly started to see a more aggressive approach from the Fed with a doubling in tapering pace and a more hawkish stance overall. The USD rallied across the board for several pips trading into the December meeting. When the outcome from the meeting met the expectations the market pull-backed in a classic “buy the rumour, sell the fact” scenario.

This is just a quick little guide on how you can look at what really matters for the markets and filter the unnecessary stuff that may just harm you. Generally, the market is focused on a couple big macro themes that affect all of the asset classes and you just need to know what that is and especially what the future outcome may be and position accordingly.

This article was written by Giuseppe Dellamotta.