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USD Rate

The US Dollar: Next on our list of forex currencies is the US dollar / Yen pair,currency trading online forex with anna which constitute 18%-20% of the currency trading market. With this pair the base currency is the US dollar so let's look at that and it's importance to us as forex traders.

USD Rate : The US Dollar

With the largest economy in the world, the US dollar dominates the world stage and you underestimate its significance in trading at your peril. Whilst in Europe it has been replaced by the Euro as currency of first reserve, throughout the rest of the world the dollar is still the most common currency for international transactions, and constitutes more than half of other countries foreign exchange reserves. Before you open a trade in another pair, make sure you have checked on the direction of the US dollar.

USD Rate : US Economy

The US is the world's largest importer of goods, the worlds third largest exporter, and a GDP of 14 trillion dollars in 2006. The country is rich in minerals, natural resources, and fertile soil, but it is the labour force that converts these raw materials into goods and services. Throughout it's history the US has experienced a steady growth in it's labour force and that in turn has helped to fuel almost continuous economic expansion. The quality of labour is extremely high and also mobile, moving to those areas in the country of high production and output. The American economy is often referred to as 'mixed', a term used to describe the importance of both private enterprise and government controls working together to achieve a  successful economy. Americans believe supply and demand determines the prices in the market, and this is underpinned by their belief in free enterprise and the entrepreneurial spirit.

USD Rate : Factors Affecting The Dollar

The US equivalent of a central bank is the Federal Reserve, founded in 1913 as an independent body within government, as none of the decisions it makes have to be ratified by the President. The Reserve sets monetary policy, with the FOMC ( Federal Open Market Committee)  overseeing the market operations.  The FOMC sit eight times a year and it is at these meetings that economic forecasts are made by the Chairman, along with decisions on interest rates. The release of this data, has a huge impact on the currency markets immediately following the announcements, and the data is 'sliced and diced' for hours afterwards. Price swings can be large, and it is often the case that the initial market movement will promptly be reversed shortly afterwards. The reason often given is that traders have had time to analyse the figures in more detail. The truth is that it is an opportunity for brokers to take out your stops! In these volatile periods most forex brokers will widen their spreads to reflect the increased volatility. For those who trade on or through these announcements this can be a major source of annoyance, and the forums are full of the moans and groans from traders - my view is that this is part of trading - just accept it! The FOMC also forecasts GDP, inflation, and unemployment rates, all major factors affecting the currency. The US Treasury Department is also involved in influencing economic policy and will often issue instructions to intervene in the forex market if conditions suggest that the currency is over or under valued. The USD index chart will give you a guide to dollar strength or weakness. Be aware that gold which is priced in dollars tends to have an inverse relationship ( negative correlation ) to the dollar,  whilst US stocks and bonds are positively correlated. ( I discuss correlation later in regard to the pairs themselves)

USD Rate : Major Economic Indicators
Interest rates - Naturally these can cause major moves in currency. Often considered a blunt instrument, their effect in the market may last only a few hours or days. For long term traders they are an annoyance - for short term traders they represent volatility in the markets and a trading opportunity. One change in interest rates rarely happens in isolation without hints of others to follow. Words such as vigilance or strong vigilance will often be reported.
NFP - Non Farm Payroll is announced at 8.30 a.m. EST on the first Friday of each month. No single indicator can move the markets, including stocks, bonds and forex as this one - it is a major economic indicator. The employment figures it provides are dissected and analysed for hours and days afterwards. Ironically, and approximately 2 weeks later, these figures are then revised as the data is consolidated. Needless to say, by then the markets have moved on! If jobs are on the increase this could be the first signal of an overheating economy, which in turn could drive interest rates higher. This could make the currency more attractive to overseas investors. A poor set of results could suggest problems for US companies and hence downward pressure on interest rates. This would make the currency less appealing to overseas investors.
GDP - GDP is a classic lagging indicator and foremost in reporting on the health of the economy as it measures how fast or slow the economy is growing. The figures are released in the final week of January, April, July and October with various revisions a month or so later. The currency market sensitivity to these figures is medium to high ( as are stock and bond markets ). If we look back over the last 50 years at GDP performance it is clear that the US economy has shown almost continuous upwards growth.
CPI - Consumer Price Index, Another of the red hot indicators that is dissected by the currency and broader markets. This is generally released in the second or third week following the month being considered, and is released monthly at 8.30 am EST.
Durable Goods Orders - A key indicator of future manufacturing activity. This is released at 8.30 am EST 3-4 weeks after the end of the reporting period, and on a monthly basis. The reason this news is important is simply that it provides a snapshot of future manufacturing output and therefore a clue to the health of the economy, and therefore the strength or weakness of the currency.

There are many other news announcements that move both forex and stock markets, including consumer confidence, PPI ( producer price index) and the Beige Book - you will need to follow all these announcements if you are to be successful in your online currency trading, and understanding the factors that affect the usd rate will be one of them. OK, let's have a look at the GBP/USD currency pair.

 

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