16.12.2010 Post in Trading

Each Forex trader should track the dynamics of the US dollar rate and estimate its behavior against other currencies. Successful USD trading can be organized by using graphic models, observing fundamental factors and paying attention to the market sentiment.

When trading the dollar it is necessary to mind the current US economy state. It is natural that a stable economy attracts investments, creates the atmosphere of confidence and safety, and ensures capital inflows, which allows compensating the trade deficit.

The US economy is experiencing a trade deficit caused by the import prevailing over the export. However, advancing economic indicators of the country seem quite attractive for foreign investments, which provides a good opportunity to recoup for the trade deficit.

Let us consider the factors affecting the dollar value:

Demand and supply. According to the indicators, import exceeds export; therefore, the demand for the US currency on the international market is not supposed grow day by day. Then the government and major corporations start to issue bonds. They are bought by foreigners, which results in growing demand for the US dollar and the appreciation of its value. Foreign interest in the dollar has been increasing due to the economic growth and improving incomes of the US companies. Market psychology also influences the dollar value. For instance, rising jobless rate and other negative factors tends to provoke bonds and shares selling. This is how money is taken out of the dollar sphere and converted back to foreign currencies, which determines the decrease of the dollar value.

Besides, technical factors should be taken into account. The most essential of them are news and statistical data related to the economies of the countries. They can help determine short-term and even long-term market trends. Sometimes psychological factors and sentiments can dominate over economic indicators. In this case it would be wise to draw analogies to the market behavior under similar circumstances. Please, keep in mind that a certain situation can always reoccur on the market.

Each trader develops a trading strategy in accordance with his/her psychological type. A trader is guided by his/her personal considerations when making a decision to buy or sell the dollar. The best decision will be the one supported by several different factors. Proper allocation of priorities and adequate estimation of market processes will lead you to the successful trading.

Added by Tatyana Makhina,
InstaForex Clients’ relationship manager