Lesson 3: Why the US Dollar is Still King of the Currency World
Lesson 3: Why the US Dollar is Still King of the Currency World
In our last lesson we had a review of the basics of fundamental analysis which we have learned up to this point with a 10 question quiz on monetary policy, trade and capital flows, and the US Economy. In today's lesson we are going to begin our discussion on the fundamentals of the main currencies of the world, starting with an overview of the US Dollar.
As we discussed briefly in our lesson on the main currencies of the world in module 1 of this course, although there is lots of news lately about the US Dollar losing some of its status, as of this lesson there is no doubt that the US Dollar is still the king of the currency world. There are several primary reasons for this which we will cover in today’s lesson, and which are behind the fact that no matter what currency a trader trades, pretty much everyone in the forex market follows the US Dollar.
The first reason why the US Dollar is the king of the currency world is the fact that it is a part of each of the world’s most actively traded currency pairs. According to the Bank of International Settlements and as outlined here, these currency pairs account for 67% of the daily turnover in the forex market. When you add the US Dollar Swidish Krona currency pair and all of the currencies categorized as “other” traded against the US Dollar, that total rises to 89%
A second reason why the US Dollar is still the king of the currency world is because it is the world’s primary reserve currency, accounting for over 63% of the world’s currency reserves. A reserve currency is a currency held by the governments/central banks of other countries in large quantities. Countries do this so they can purchase goods which are priced in the reserve currency at a cheaper rate than if they had to convert, and to borrow money at a cheaper rate, since lenders will be more likely to lend knowing they hold large quantities of what is considered a more credible currency. Perhaps most importantly for traders, many countries and especially countries in Asia (the most talked about example being china) maintain large reserves of US Dollars so they can either peg the value of their currency to the US Dollar, or maintain a loose peg. The goal here is to either stabilize their own currencies and therefore their economies and/or to hold the value of their currencies artificially low in order to make their goods more competitive overseas, something which we will examine further in our next lesson.
Thirdly, many private businesses and individuals located outside the United States hold US Dollars for trade reasons, because they consider the currency more stable than their home country’s currency, or for a multitude of other reasons. This, combined with what we just covered on the US Dollar being the world’s primary reserve currency, means that over 2/3rds of all US Dollars in circulation are held outside of the United States.
The last major reason why the US Dollar is still king of the currency world is because many major commodities such as oil, gold, and silver are priced in US Dollars, making access to US Dollars essential for anyone in the world who wants to purchase these products.
More than simple interesting facts, these factors can have huge affects on the value of the US Dollar, and are therefore extremely important to us as traders. Exactly how these things affect the US Dollar, and therefore exactly what we should watch out for as traders will be the topic of our next lesson so I hope to see you then.
Elevate Your Trading With The Amazing Trader!
The Amazing Trader includes:
Actionable trading levels delivered to YOUR charts in real-time.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.