Forex Learning: 3 Important Factors Affecting the US Dollar
Forex Learning : When it comes to the decision whether you have to buy or sell dollars, it all comes down to the economic activity that occurs. Why? Because a strong economic country will attract investment all over the world. Fund security factors and investment return ability will be the choice of investors.
On the other hand, US consumption of imported goods and services from other countries has caused the dollar to flow abroad. Although the US is the engine of the world economy, today the US has become the largest debtor for consumption.
The US is able to attract foreign capital to offset the trade deficit (if imports are greater than exports, the current account balance will experience a deficit).
Factors Affecting Dollar Value
The point is that when it will take a position in dollars, forex traders actually need to know the various factors that affect the dollar value.
This methodology can be divided into three factors as follows:
- Supply and demand factors
- Market sentiment and psychological factors
- Technical factors
Dollar Versus Demand Supply
When we export products or services, these activities will create demand for dollars because exporters need payments for goods and services in the form of dollars that must be converted from local currency into dollars. Therefore exporters will sell currencies and buy dollars so they can make payments.
Another example is when the US government or major American exporters issue bonds to increase capital, so when bonds are bought by foreigners, once again payments will be made in dollars.
Likewise, if economic growth occurs in the US will bring foreigners to own US company shares, then once again the stock investor will sell the local currency to buy dollars to pay for stock purchases.
Market Sentiment and Psychology
Also note if the US economy weakens, consumption slows and unemployment increases? and then the US is faced with the possibility that foreigners will sell bonds or shares where investors return to want cash from selling shares and bonds. This activity will make the dollar sell and buy in the local currency of the investor.
As traders, we must measure whether the dollar supply will be larger or smaller due to dollar demand. To help determine this, we need to pay attention to various news and economic events released by the government such as salary data, GDP data and economic measurement information that can help us determine what happens in the economy and predict whether the economy strengthens or weakens
In addition, we need to determine general sentiments about what the market thinks. To add to the mix of estimates, historical patterns generated at support and resistance levels, technical indicators and so on will be important.
Many traders believe that these patterns will be repeated and therefore can be used to predict future movements.
Economic conditions during the recession that began in 2007 have forced the US government to play an unprecedented role in the economy. Because economic growth receded due to large deleveraging of financial assets that occurred.
The US government must take policies to increase government spending and keep the economy running. The purpose of their spending is to create jobs so that consumers can earn money and increase consumption so as to encourage the growth needed to support economic growth.
The government took this position at the expense of increasing deficits and national debt. The cost of this increase is basically printing money and by selling government bonds to foreign governments and investors which results in an increase in the supply of dollars. Therefore as a result the dollar depreciates.
Keeping an eye on the Dollar Index chart will give you an idea of how the dollar will price against other currencies. By looking at the patterns on the chart and listening to the sentiment in the market and monitoring the main fundamental factors that influence the supply and demand of traders, it can develop a big picture of the flow of dollars.
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