What Drives the US Dollar - do you alredy know?

It is a general belief that the forex trading is to a great extent confined to buying and selling US dollars. In fact, there is a large grain of truth in it, since transactions dealing with dollars turn out to be the most profitable one. Trading dollars is the safest and easiest way to make money on forex. However, how to determine whether to go long or short on dollars, when it actually comes to making trading decisions?

Making decisions about either selling or buying US dollars in forex actually depends on three factors (this is extremely important to know if you work with foreign exchange trading systems). Knowing what influences the dollar value helps to identify the trend direction and this is what every forex trader hunts for. The factors on which the dollar price depends are: supply and demand for dollars, traders’ sentiment and market psychology in addition to fundamental and technical factors.

Let’s dwell on each of these factors in more detail.

Supply and demand are the main driving forces that determine the value of dollars (as the value of any other currency, too, actually). It all comes to how well the US economy is performing. Strong economy attracts foreign investments, which results in high demand for dollars, and vice versa, if the economy weakens, the investors are frightened off and the demand for dollars decreases, which means that this currency loses its value and foreign exchange trading systems consider that.

Supply and demand is also connected with export and an import, meaning that the more products are exported by the USA, the higher the demand for US dollars is, because customers buy dollars in order to pay for the goods in services in this currency, thus increasing its value. If the situation is opposite (the exports are low), dollar is devaluing.

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