Fundamental analysis is widely used in trading for thousands years. In stock trading fundamental analysis of the companies prevails over the technical analysis in the
Relying on a news effect. You cant rely on the specific news effect that will be caused on a specific currency pairs. For instance, good news on the U.S. economy not always make dollar go up, while bad news not always make it go down. Additionally there might be a very high volatility period after such releases that would make all your fundamental assumptions fails. Although, this is generally true for the U.S. related fundamental indicators, sometimes the same happens with the other currencies and countries.
Intraday fundamental trading. Intraday use of the fundamental analysis is probably something unique to Forex market, but I know a lot of traders that are fond of it. Nevertheless, majority of them fail greatly, because fundamental analysis usually does not work that way. Fundamental indicators set
Confusing good for currency and good for economy. More than often economic indicators that are good for the currency of the particular country are hurting its economy and vice versa. This happens because weak currency is often a boon the countrys exporting companies, while a strong currency usually hurt the trade balance and the manufacturing industries. So, remember that not all «good» indicator releases are good for the currency you buy.
I use fundamental analysis in my Forex trading, but I am aware of its possible problems. If you want to trade using mainly fundamental analysis — then fine, just do not forget to be careful with this tool.