The Forex Trading Course: A Self-Study Guide to Becoming a Successful Currency Trader, 2nd Edition

Chapter 8The Personality and Performance of the US Dollar

Gaining a fundamental understanding of the US economy is a critical part of being prepared fundamentally for forex trading. The US economy is still the largest developed economy in the world, and therefore the US dollar reflects this importance. Much of the world's trade is denominated in dollars, and global reserves of central banks hold over US$4 trillion, which is about 60 percent of all reserves, according to latest data. It is true that we are in a period when the world economy is growing, particularly with the growth of Asia. This growth may mean that in the coming years, the preeminence of the US economy will diminish. However, as the US economy remains the critical pivot point of the world economy, forex trading will continue to pay close attention to US-based economic events. In particular, the forex trader, in trading a currency pair involving the dollar, is actually making a judgment or a bet about the direction of the US dollar with regard to the other pair. This can be a five-minute bet or one that goes substantially longer in duration. But the fundamental question the trader has to answer is whether to be bullish or bearish on the dollar for his next trade. The US dollar index is the standard reference for tracking sentiment on the US dollar (Figure 8.1).

Figure 8.1 USDX Day Chart.

Gaining insight into ...