The United States is composed of 50 states and one Federal District. Most of the country’s territory is in North America, but some of it is in the Pacific.
Since gaining independence from Britain on July 4, 1776, the United States has become an economic power in the West and the world.
As the world’s largest economy, the United States plays a very important role in the international market.
⊙ 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: President Barack Obama;
⊙ Famous actors: Sandra Bullock, Jeff Bridges, John Deep, Halle Berry;
⊙ Currency: US dollar (USD);
⊙ Main imported commodities: industrial supplies (crude oil, etc.), capital goods (computers, communication equipment, auto parts, office equipment, electrical machinery), consumer goods (cars, clothing, medicines, furniture, toys), and agricultural products;
⊙ Main export commodities: capital goods (transistors, airplanes, auto parts, computers, communication equipment), industrial supplies (organic chemical raw materials), consumer goods (automobiles, pharmaceuticals), agricultural products (soybeans, fruits, corn), Barbie dolls , Game consoles and Apple series products;
⊙ Import partners: China (19%), Canada (14.1%), Mexico (12%), Japan (6.4%), Germany (4.7%);
⊙ Export partners: Canada (18.9%), Mexico (14%), China (7.2%), Japan (4.5%);
⊙ Time zone: West Ten District, West Nine District, West Eight District, West Seven District, West Six District, West Five District;
⊙ Website: http://www.usa.gov.
The United States is recognized as the richest country in the world, with an output value of US$16.24 trillion in 2012. In 2012, the national average income-gross national product divided by the total population-was $51,700 per year, ranking 13th.
Major US industries include aircraft, automobiles, transistors, communications equipment, and other industrial supplies. Although it seems that the US economy relies mainly on manufacturing physical goods, in fact, 70% of its output value comes from the service industry.
When it comes to trade, an important feature of the US economy is the huge trade deficit (that is, the value of imported goods in the country is higher than the value of exported goods).
The United States is home to the New York Stock Exchange, the world’s largest stock exchange. The world’s largest bond market is also in the United States, with a market value of over US$31 trillion and an average daily bond transaction volume of over US$822 billion.
As the top economy in today’s globalized market, domestic things that affect the United States also affect the global market…including the foreign exchange market.
Monetary and fiscal policy
The Federal Reserve (Federal ReserveBoard, or Fed) is the US department responsible for the formulation and implementation of monetary policy.
Monetary policy is the way the Fed controls the money supply in the economy. The distinguishing feature of the Fed from other central banks is that its goal is achieved through the long-term role of monetary policy. The Fed has two goals, one is to maintain price and service industry prices stable, and the other is to ensure sustained economic growth.
Within the Fed is the Federal Open Market Committee (FOMC). At present, FOMC is led by Fed Chairman Janet Yellen. It is the FOMC’s priority to formulate reasonable monetary policy.
FOMC has two important weapons in dealing with inflation and achieving long-term goals: open market operations and the Federal Reserve Fund interest rate.
The Fed’s first line of defense in open market operations refers to buying or selling government financial instruments such as securities, bills, and bonds.
The Fed has two main weapons in suppressing inflation and achieving its long-term goals: open market operations and the federal funds benchmark interest rate.
The Treasury Department is now responsible for fiscal policy. Fiscal policy refers to the use of government spending and taxes to influence the direction of the economy.
In order to promote business activities, the US Treasury will choose to reduce taxes and increase the budget for infrastructure such as roads, schools, broadband, and secret military bases. Conversely, if inflation cannot be controlled, it will increase tax rates and reduce expenditures.
Understand the dollar
Did you know that the dollar nickname “Buck” comes from buckskin, a medium of exchange commonly used by early American settlers to trade with Indians?
Although paper money replaces deerskin in barter transactions, people still call this medium of exchange buck! Let’s take a look at the properties related to the US dollar and foreign exchange transactions.
A large portion of daily currency transactions include the US dollar. Commodities such as gold and crude oil are denominated in US dollars. Even during Asian trading hours, the US dollar accounts for 93% of currency transactions.
To make it more practical, we take the New York Stock Exchange and the US bond market as examples. The market value of companies listed on the New York Stock Exchange is as high as 28.5 trillion US dollars, accounting for 78% of the world’s stock market worth 36.6 trillion US dollars.
Similarly, the US has a share of 31.2 trillion in the global bond market worth 82.2 trillion U.S. dollars. To some extent, every transaction involves the US dollar. What kind of liquidity is that?
The Fed and the US government believe that the US dollar should remain strong
In the past few decades, the Fed and the US Treasury have adhered to the “strong dollar” policy. They believe that both monetary and fiscal policies should serve the strong dollar exchange rate, because this is not only beneficial to the United States, but also to the world.
The currencies of emerging countries rely on the US dollar to price them
How often do we hear the following statement-the US dollar is the world’s reserve currency. The reason behind it is that some countries rely on the US dollar to measure the value of their currency. When a country does this, its government agrees to buy or sell its currency at a fixed price relative to the US dollar. Although the government can increase or decrease the money supply, they must guarantee the corresponding dollar reserves.
This process reflects the importance of the dollar in the world, because it means that some economies are completely dependent on the dollar.
If the price of the U.S. dollar falls sharply, it will have a profoundly negative impact on countries that use the U.S. dollar to measure the value of their national currency.
Important economic indicators related to the US dollar
⊙ Number of Non-agricultural Employment (NFP): The NFP Employment Report measures the change of the number of employed people from the previous month;
⊙ GDP: Gross Domestic Product (Gross Domestic Product) report measures the total value of a country’s terminal products and services;
⊙ Retail sales: Retail sales report monthly changes in the total price of products sold in retail mode. Core retail sales do not include car sales;
⊙ Consumer Price Index (CPI): CPI reflects the price changes of a basket of goods and services. The core consumer price index does not include food and energy prices, because their prices fluctuate frequently;
⊙ Personal consumption expenditure: This indicator is very similar to the CPI. It measures the price change of consumer goods in the United States. The reason why you should pay attention to this report is that this is the report that the Fed will use as a reference when formulating monetary policy. We also want to be with the experts, don’t we?
⊙ University of Michigan Consumer Confidence Index: Every month, the University of Michigan publishes its consumer confidence report. This index reflects consumer attitudes towards the economy. The more consumers have confidence in the economic situation, the higher their consumption will be.
What factors affect the trend of the dollar?
Whenever the dollar depreciates due to inflation, investors will switch to gold for safety. Unlike other financial assets, gold can maintain its intrinsic value. Gold is gold, it’s the same everywhere. Therefore, the rising price of gold indicates that the US dollar is losing its attractiveness.
American Economic Development
The positive economic development of the United States will attract more investors. Investors need dollars to complete the transaction. As the demand for investment in the United States increases, so will the demand for dollars.
Capital inflow and outflow
Compared with Japan and the United Kingdom, the United States has the deepest and most advanced financial markets. Among them, there are a variety of investment options for kings, Sudan, billionaires and heirs around the world.
To invest in American assets, investors must exchange their holdings for dollars. Capital inflows and outflows in the US financial market have a huge impact on the price of the dollar.
World Economic Development
Because the US dollar is included in most currency transactions every day, any major event in the world (Australia’s rapid GDP growth, the collapse of the Chinese stock market, or Japan’s attack by Godzilla) will affect the short-term price movement of the US dollar.
Bond yield difference
Investors will look for deals that are beneficial to them, so it is important to understand the bond returns of the United States and other countries.
If investors find that foreign bond yields have increased, while U.S. bond yields have not changed or decreased, investors will withdraw their money from U.S. bonds (while selling dollars in their hands) to buy foreign bonds.
News of interest rate changes
Market participants will focus on interest rate trends, and so should you.
If the Fed is expected to raise interest rates, then the demand for US dollar-denominated financial assets (such as US Treasury bonds) will increase and the US dollar will be bullish.
If the Fed is expected to lower interest rates, the demand for US dollar-denominated financial assets (such as US Treasury bonds) will decrease, and investors will withdraw their funds from the US dollar.
Because Fed officials usually give hints on future central bank interest rate changes, traders should pay attention to what they say.
US dollar as base currency
The number of USD/XXX transactions is measured in USD. A standard lot is $100,000, and a mini lot is $10,000.
The value of each point is measured by XXX, and the four or two decimal places are one point. Usually, the two decimal places of the yen currency pair are one point.
Gains and losses are priced in XXX. For a standard lot, the change value of each point is 10XXX. For a mini lot, the change of each lot is 1XXX. For example, if the current exchange rate of USD/XXX is 1.4000, then the value of one standard lot is 14 USD.
The calculation of margin trading is based on US dollars. With a leverage of 100:1, to trade USD 100,000/CAD is USD 1,000.
USD as quote currency
XXX/USD is traded at XXX pricing. A standard lot is 100,000 XXX, and a mini lot is 10,000 XXX.
The value of each point is denominated in US dollars. In the exchange rate expressed in XXX/USD, four or two decimal places are one point.
Gains and losses are denominated in US dollars. In the case of 1 standard lot, the value of each fluctuation is $10; for the mini lot, the value of each change is $1.
The calculation of margin trading is based on US dollars. For example, if the current exchange rate of XXX/USD is 0.8900 and the leverage ratio is 100:1, the minimum margin required to trade a standard lot should be $890. However, as the XXX/USD exchange rate rises, the demand for USD margin will increase. Conversely, the amount of USD margin required will be reduced.
Dollar trading tips
Now let’s put down what we have learned before and take a look at some dollar trading tips.
Observing the difference between the economic development data of the United States and the economic development of other countries is a good start for US dollar transactions. For example, increased retail sales in the United States and worsening employment conditions in the United States give you good reasons to sell GBP/USD.
The US Dollar Index (USDX) tracks the performance of the US dollar against a basket of currencies and is a barometer that reflects the strength of the US dollar. By regularly checking the dollar index, you can find out the direction of dollar fluctuations. The upward trend of the US dollar index indicates that you need to make short EUR/USD trades.
The statement that the federal funds benchmark interest rate will be raised indicates that US assets may show high returns, prompting investors to buy dollars as much as possible. Don’t be left behind!
We need to pay attention to the prospects of the Fed’s monetary policy, which is usually part of the speech of Fed officials. It usually provides you with clues on the direction of the dollar.
Hawkish remarks can be used as a signal to do more USD/JPY, while doveish remarks can be used as a signal to sell USD/JPY.