One of the dominant debates among financial analysts is the relative validity of the two primary approaches of analyzing markets: fundamental and technical analysis. There are several points of distinction between fundamentals and technicals but it's true that both study the causes of market movements and both attempt to predict price action and market trends. Fundamentals focus on financial and economic theories, as well as political developments to determine forces of supply and demand.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies. This assumption is based on the belief that the exchange is determined by the underlying health of the two nations involved in the pair.

When evaluating one nation's currency relative to another, fundamental analysis relies upon a broad understanding of multinational macroeconomic statistics and events. Usually it examines core underlying elements that influence the economy of a particular currency. These might include, on the one hand, economic indicators such as interest rates, inflation, unemployment, money supply and growth rates. On the other hand, it also examines socio-political conditions which could impact on the level of confidence in a nation's government and affect the climate of stability.

Fundamental analysts use different models to examine currency values and forecast future movements. Herewith we describe the major models for forecasting currency prices, their principles and limitations.