For profitable trade, the Forex traders should keep track of changes in US dollar rates and guess its performance against the other available currencies. They should additionally be considerate of the state of US economy. Only a good economy can ensure security and dependability required for good investments essential for ensuring influx of capital and compensations for shortages in trade.
Due to imports exceeding the exports, the economy of US is at present undergoing a shortage in trade. Nevertheless, the progressing indicators for country’s economy appear catchy for foreign investors thus providing a chance of recovering from the deficit.
Following factors may affect dollar’s value are:
• Supply and demand: The imports exceeding the exports reduce the demand of dollar in the international market. The government and other major bodies start issuing bonds, which the foreigners buy thus increasing the dollars’ demand and value. Economic enhancement increases the foreign inclination in dollar and the earnings of the companies in US.
• General psychology of market: Taking the example that an increase in unemployment provokes selling of shares and bonds which ends up in converting dollars to their corresponding foreign currency, thus degrading the value of dollar. The psychological factor can even rule over the indicators depicting economy.
• Technical factors: E.g. economic statistical data of various countries and news assist in finding out the short and long-term trends of the prevailing market.
See this old video from 1953. about dollar:
Every trader defines trading strategies as per his psychological kind. Traders’ decisions are governed by their individual views whether to buy or sell dollars, the best being one that is supported by majority of the above factors. Profitable trade can be achieved by correct prioritization and sufficient approximations of the market process.