What Is a Fundamental Bias?

What is a fundamental bias? It is the side you expect a currency to move toward, judged from the economy behind it rather than from its chart. Interest rates, inflation, growth and how other traders are positioned all go into it.

Rutger Lokin, who founded Forex Fundamentals, started out as a purely technical trader. When he began adding fundamentals to his trading, he found no resource that made the data usable. The Bias on this site exists to answer the question a chart leaves open, which side a currency is on, in one word.

It is not an entry. A bias tells you which trades deserve a closer look. When to take one, how much to risk and where to get out stay your decisions.

The eight values

On Forex Fundamentals the Bias is one word on a fixed scale of eight:

• Strong Bullish, Bullish, Slight Bullish: the fundamentals pull the currency up, from strongly to slightly.
• Neutral: nothing is pulling hard either way, and no meaningful move is expected.
• Mixed: the signals contradict each other and leave no net direction.
• Slight Bearish, Bearish, Strong Bearish: the fundamentals pull the currency down, from slightly to strongly.

Newcomers read Neutral and Mixed as the same thing, because neither gives you a side. They describe very different currencies.

Picture two invented ones. The first has a central bank on hold, inflation near target and data that land close to the forecast: Neutral. The second has inflation running hot, which argues for higher rates, next to growth that is stalling, which argues for cuts: Mixed. Both pulls are strong. They just cancel out for now, and when one side gives way, the Bias moves.

Each Bias also carries a Confidence, low, moderate or high, judged on its own. So a Strong Bullish Bias can come with low Confidence: everything points up, but the evidence is thin. Read the two together before you lean on either.

The desk’s Bias for each of the ten major currencies, with its reasons heaviest first and what could change it, is on Forex bias for every major currency. Nine of them are judged against the US dollar, and the dollar against the other nine.

Where a bias comes from

Most of what fundamentals do to a currency runs through one channel: what the market expects its central bank to do with interest rates. Data that push the bank toward higher rates tend to lift the currency. Data that argue for cuts tend to weigh on it.

Say a country’s inflation comes in above the forecast two months running. Traders start to price a rate rise that nobody expected a quarter ago, and the currency is worth more to hold. A bias is meant to catch that pull while it is still coming from the data.

So a bias weighs the things that move those expectations:

• the rate path and the central bank’s tone, whether it sounds hawkish or dovish;
• the inflation and growth releases;
• how traders are already positioned, which the CFTC’s COT report shows for futures.

Positioning is the one people leave out. If almost everyone already holds a currency, good news has fewer new buyers left to move it, and bad news has a crowd ready to sell.

From two biases to a pair

A pair prices one currency against another, so it has two biases behind it. The clearest case sets a currency with a bullish bias against one with a bearish bias. Then both halves of the pair pull the same way.

Here is an invented example. None of these is a current reading.

• The euro is Bullish: inflation above the forecast and a hawkish central bank.
• The yen is Bearish: a dovish central bank and softer data.
• In EUR/JPY both halves point up, so that is the pair worth a look.
• If the dollar is Bullish too, EUR/USD sets two bullish currencies against each other. The fundamentals say little about that pair, so it goes to the bottom of the list.

The bias gave no entry in any of those. It told you which chart to open. On Forex Fundamentals the desk reads both currencies of a pair and gives the pair a Call of its own: Buy, Sell or Range.

What people get wrong

The first mistake is treating a bias as an entry. You can be right about the bias and still be stopped out, because the price can run against the fundamentals for days or weeks.

The second is refusing Neutral or Mixed. When the drivers conflict, forcing a direction on the currency means you are trading a hope.

The third is updating on price instead of data. A currency that fell for three days does not have bearish fundamentals because of it. A bias changes when the data behind it change: a release, a central bank decision, a shift in positioning. Most days, most biases hold.