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2021 foreign exchange investment teaching: how to buy US dollars, what are the factors that affect the trend of the US dollar?

2022-03-22
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  From today onwards,we will bring you together in Europe,America and Asia,but it will not take 80 days.If you can keep up with us,we'll be doing one lap in just a week!The purpose of this round of travel is to get to know the basic information of the world's major economies and the factors that drive the economy forward,as well as the characteristics of each country's currency.

  For each country we'll be visiting,we'll start by taking a quick look at relevant key facts and figures,and then get an overview of its economy.We will visit the country's central bank and learn the secrets of the central banks of various countries.Here,we'll explore the powerful monetary policy tools central banks use to control a country's economy.Here we want to teach you how to better conduct foreign exchange investment transactions.

  In addition,we will discuss important features that distinguish one country's currency from other countries'currencies,as well as important economic indicators for that country.In order to make our journey interesting,we will occasionally do a little Q&A and tell you useful trading tips.

  Go light,because all you need is your thirst for knowledge.Are you ready?Let's hit the road together.

  Today we first arrive at a country located in the northern hemisphere-the United States,and learn its national currency-the US dollar.

  Overview of the United States

  The United States is made up of 50 states and a federal territory.Most of the country's territory is located in North America,although it also has parts in the Pacific Ocean.

  Since gaining independence from Britain on July 4,1776,the United States has become an economic powerhouse in the West and the world.

  As the world's largest economy,the United States plays a very important role in the international market.

  United States:Facts,Figures and Features

  Neighboring countries:Canada,Mexico,Puerto Rico,Cuba

  Area:3,794,101 square miles

  Population:309,349,689

  Population density:87.4 people per square mile

  Capital:Washington

  Head of government:Joseph Biden

  Currency:US Dollar(USD)

  Main imported goods:industrial supplies(crude oil,etc.),capital goods(computers,communication equipment,auto parts,office equipment,electrical machinery),consumer goods(automobiles,clothing,medicines,furniture,toys),and agricultural products

  Main export commodities:capital goods(transistors,aircraft,auto parts,computers,communication equipment),industrial supplies(organic chemical raw materials),consumer goods(automobiles,medicines),agricultural products(soybeans,fruits,corn),Barbie dolls,game consoles and iPhone

  Import partners:China(27%),Canada(21.4%),Mexico(17.8%),Japan(8.7%),Germany(6.6%)

  Export Partners:Canada(19.4%),Mexico(12.8%),China(7.2%),Japan(4.7%)

  Time zone:West Tenth District,West Nineth District,West Eighth District,West Seventh District,West Sixth District,West Five District

  Website:http://www.usa.gov

  Economic overview

  The United States is recognized as the richest country in the world,with an output value of$15.09 trillion in 2011.Average national income--gross national product divided by total population--was$48,386 a year in 2011,placing it at No.8.

  Major U.S.industries include aircraft,automobiles,transistors,communications equipment and other industrial supplies.Although it appears that the U.S.economy relies primarily on the manufacture of physical goods,in fact 70%of its output value comes from the service sector.

  When it comes to trade,an important feature of the U.S.economy is its large trade deficit(that is,the value of goods imported by the country is higher than the value of goods exported).

  The United States is home to the world's largest stock exchange,the New York Stock Exchange.The world's largest bond market is also in the United States,with a market capitalization of more than$31 trillion and an average daily bond trading volume of more than$822 billion.

  As the top economy in today's world's globalized marketplace,domestic events that affect the United States also affect global markets—including foreign exCM Trade.

  monetary and fiscal policy

  The Federal Reserve(Federal Reserve Board,referred to as the Fed)is the department in charge of the formulation and implementation of monetary policy in the United States.

  Monetary policy is the Fed's way of controlling the money supply in the economy.What distinguishes the Fed from other central banks is that its goals are achieved through the long-term effects of monetary policy.The Fed has two goals,one is to keep prices and service prices stable,and the other is to ensure sustained economic growth.

  Inside the Fed is the Federal Open Market Committee(FOMC).The current FOMC is chaired by Federal Reserve Chairman Jerome Powell

  Leadership and making sound monetary policy are the top priorities of the FOMC.The FOMC has two important weapons in tackling inflation and achieving its long-term goals:open market operations and the Fed funds rate.

  The Fed's first line of defense,open market operations,refers to buying or selling government financial instruments such as securities,bills and bonds.

  The Fed has two main weapons in curbing inflation and achieving its long-term goals:open market operations and the benchmark federal funds rate.

  The U.S.Treasury Department is now in charge of fiscal policy.Fiscal policy is the use of government spending and taxes to influence the direction of the economy.

  To boost business activity,the U.S.Treasury Department has chosen to lower taxes and increase budgets for infrastructure such as roads,schools,broadband,and secret military bases.Conversely,if inflation is out of control,it will increase tax rates and reduce spending.

  understand the dollar

  Did you know that the dollar's nickname"Buck"comes from deerskin,a common medium of exchange used by early American settlers when they traded with Indians?

  Even though paper money replaces deerskins in barter,people still refer to this medium of exchange as bucks!Let's take a look at the properties of the US dollar related to foreign exchange trading.

  Liquidity is the hallmark of the dollar!

  A large percentage of daily currency transactions include U.S.dollars.Commodities such as gold and crude oil are denominated in US dollars.Even during Asian trading hours,the U.S.dollar accounts for 93 percent of currency trading.

  To make it more practical,let's take the example of the New York Stock Exchange and the US bond market.Companies listed on the New York Stock Exchange have a market capitalization of$28.5 trillion,accounting for 78%of the world's stock market valued at$36.6 trillion.

  Similarly,the US holds 31.2 trillion of the$82.2 trillion global bond market.To some extent,every transaction involves dollars.How liquid is the dollar?

  Fed and U.S.government think dollar should stay strong

  Both the Federal Reserve and the U.S.Treasury have adhered to a"strong dollar"policy over the past few decades.They believe that both monetary and fiscal policy should be in the service of a strong dollar,as it benefits not only the United States,but the world as well.

  The currencies of emerging countries are priced in dollars

  How often do we hear the following statement,the dollar is the world's reserve currency?The reason behind this is that some countries measure the value of their currencies by the dollar.When a country does this,its government agrees to buy or sell the country's currency at a fixed price relative to the U.S.dollar.Although governments can increase or decrease the money supply,they must maintain a corresponding dollar reserve.

  This process reflects the importance of the dollar in the world,as it means that some economies are completely dependent on the dollar.

  If the price of the dollar were to fall sharply,it would have profound negative consequences for countries that use the dollar to measure the value of their currencies.

  Important Economic Indicators Related to the U.S.Dollar

  Nonfarm Payrolls(NFP):The nonfarm payrolls report measures the change in employment relative to the previous month.

  GDP:The Gross Domestic Product report measures the total value of a country's final products and services.

  Retail Sales:Retail Sales reports the monthly change in the total price of products sold at retail.Core retail sales exclude auto sales.

  Consumer Price Index(CPI):CPI reflects price changes for a basket of goods and services.The core CPI excludes food and energy prices because they fluctuate frequently.

  Personal Consumption Expenditure:This indicator is very similar to the CPI,which measures the price change of consumer goods in the United States.The reason you should pay attention to this report is that it is the report the Federal Reserve will use as a reference when setting monetary policy.We want to join the experts too don't we?

  University of Michigan Consumer Sentiment Index:Every month,the University of Michigan releases its Consumer Sentiment Report.This index reflects consumer attitudes towards the economy.The more confident consumers are about the state of the economy,the higher their spending will be.

  Next,let's take a look at what factors affect the dollar's trend?

  gold rush

  Whenever the dollar depreciates due to inflation,investors turn to gold for safety.Unlike other financial assets,gold retains its intrinsic value.Gold is gold,everywhere.So the rise in gold prices shows that the dollar is losing its appeal.

  US economic development

  Positive economic development in the U.S.will attract more investors,who need dollars to close deals.As investment demand in the United States increases,so does the demand for dollars.

  Capital inflows and outflows

  Compared with Japan and Europe,the United States has the deepest and most advanced financial markets.It offers kings,billionaires and heirs around the world a wide variety of investment options.

  To invest in U.S.assets,investors convert their currency holdings into U.S.dollars.Capital inflows and outflows from U.S.financial markets have a huge impact on the price of the U.S.dollar.

  world economic development

  Because the U.S.dollar is included in most currency transactions every day,any major event in the world(a rapid GDP growth in Australia,a stock market crash in China,or a Godzilla attack in Japan)can affect the short-term price movement of the U.S.dollar.

  Bond Yield Difference

  Investors are looking for deals in their favor,so it's important to understand bond yields in the U.S.and other countries.

  If investors see that foreign bond yields are rising and U.S.bond yields are flat or falling,investors will pull their money out of U.S.bonds(while selling their dollars)and buy foreign bonds.

  Interest rate change news

  Market participants will be watching where rates go,and so should we.

  If the Federal Reserve is expected to raise interest rates,demand for dollar-denominated financial assets,such as U.S.Treasuries,will increase,and the dollar will rise.

  If the Fed is expected to lower interest rates,there will be less demand for dollar-denominated financial assets,and investors will pull their money out of the greenback because they are bearish on the greenback.

  Because Fed officials usually give hints about future interest rate changes by the central bank,we should pay attention to what they have to say.

  US dollar transaction(referred to as US)

  US dollar as base currency

  USD/XX trade volume is measured in USD and value per pip is measured in XX.Four or two digits after the decimal point constitute a point.For example,the two decimal places of the US dollar against the Japanese yen(USDJPY)are one point,and the rise from 106.610 to 106.650 is an increase of 4 points.

  Gains and losses are listed in XX.For 1 standard lot,the value of each point change is 10XX.For example,the current exchange rate of USD/XX is 1.4000,then the value of 1 standard lot is$14.

  Calculations for margin trading are based on USD.With a leverage of 100:1,for example to trade USD/CAD of USD 100,000,a margin of USD 1,000 is required.

  USD as the quotation currency(referred to as non-US)

  XX/USD is traded at XX pricing,with each point value denominated in USD.In exchange rates expressed in XX/USD,four or two decimal places are one point.For example,the last four decimal places of the euro against the dollar(EURUSD)are one point,and a drop from 1.09090 to 1.09020 is a drop of 7 points.

  Gains and losses are denominated in U.S.dollars.In the case of 1 standard lot,the value of each change is 10 US dollars,and the calculation of margin trading is based on US dollars.For example,if the current exchange rate of XX/USD is 0.8900 and the leverage ratio is 100:1,the minimum margin required to trade a standard lot should be$890.As the exchange rate of XXX/USD increases,the demand for USD margin will increase with of increase.

  US Dollar Trading Tips

  Now let's put aside what we've learned before and take a look at some dollar trading tips.

  Looking at the difference between the US economic development and other countries'economic development data is a good start to trading the dollar.For example,rising retail sales in the US and optimism about employment conditions in the US give you good reasons to short GBP/USD(GBPUSD).

  The U.S.Dollar Index(USDX)tracks the U.S.dollar's performance against a basket of currencies and is a barometer of the greenback's strength.By regularly checking the U.S.dollar index,you can find out which direction the U.S.dollar is moving.The dollar index is in an uptrend,indicating that it is possible to short the euro/dollar(EURUSD)trade.

  Talk of a hike in the benchmark federal funds rate suggests that U.S.assets could yield high yields,prompting investors to buy dollars as much as they can.Don't be left behind this time!Long all US-based currencies(USD as the base currency)and short non-US currencies(USD as the quote currency).

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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