Important Economic Indicators for the USD
Non-farm employment change (NFP) – The NFP employment report measures the change in the number of employed people in the prior month.
GDP – The Gross Domestic Product (GDP) report is the measure of the country’s total value of all final goods and services.
Retail Sales – The headline retail sales report measures the monthly change in the total value of sales at a retail level. The core version of the report, on the other hand, excludes vehicle sales.
Consumer Price Index (CPI) – The CPI measures the change in the prices of a fixed basket of goods and services. The core account excludes food and energy prices because of their volatile nature.
Personal Consumption Expenditure – This is very similar to the CPI report as it measures the price changes of US consumer goods. The reason why you should look at this report is because this is the one that the Fed looks at when making decisions regarding monetary policy. And we all want to be in cahoots with the experts right?
University of Michigan Consumer Sentiment – Every month, the University of Michigan releases its consumer sentiment report.
This index measures the attitude consumers have towards the economy. The more confident consumers are about economic conditions, the more likely they are to spend.
What Moves the USD?
The Gold Rush
Whenever the dollar is at risk of losing its value due to inflation, investors turn to gold for safety. Unlike most financial assets, gold maintains its intrinsic value.
Gold is gold is gold – it’s the same everywhere! So when gold prices are rising, it could be a sign that the dollar is losing its appeal.
Economic Developments in the U.S.
Fundamentally, positive economic developments in the U.S. attract more participants to invest in the U.S.
An investor would, of course, need to have some dollars to be able to transact in the U.S.
So as the demand for U.S. investments increases, the demand for the greenback rises as well.
Capital Inflows and Outflows
With respect to Japan and London, the U.S. probably has the deepest and most advanced financial markets.
This provides the many kings, sultans, billionaires, and heirs around the world with many types of investments which they can choose from.
In order to invest in these American assets, investors would first need to convert whatever currency they are holding into U.S. dollars.
The capital inflows and outflows from the U.S. financial markets can have a significant effect on the value of the dollar.
Economic Developments Around the World
Since the USD takes up about the majority of daily currency transactions, just about any major development in the world (i.e. strong GDP growth in Australia, a stock market crash in Beijing, or a Godzilla attack in Tokyo) affects its short-term valuation.
Bond Yield Differentials
With investors always looking for the best deal for their money, it is important to keep track of the differences in the yields of bonds of the U.S. and other foreign countries.
If investors see that bond yields are rising in foreign countries while yields in the U.S. are staying steady or going lower, investors will move their funds out of U.S. bonds (selling their dollars in the process) and begin purchasing foreign bonds.
Rumors on the Interest Rate Grapevine
Market participants pay attention to interest rate trends, and you should too.
If the Fed is expected to raise interest rates, this means that demand for dollar-denominated financial assets (like Treasuries) could rise, which would be bullish for the dollar.
USD as the Base Currency
USD/XXX is traded in amounts denominated in USD. Standard lot sizes are 100,000 USD and mini lot sizes are 10,000 USD.
The pip value, which is denominated in XXX, is calculated by dividing 1 pip of the USD/XXX, which would be 0.0001 or 0.01 depending on the pair being talked about, by the USD/XXX current rate.
Profit and loss are denominated in XXX. For one standard lot position size, each pip movement is worth 10 XXX. For one mini lot position size, each pip movement is worth 1 XXX.
For example, if one pip is equal to 0.0001 and the current exchange rate of USD/XXX is 1.4000, one pip of one standard lot would equate to 14 USD.
Margin calculations are based on US dollars. With a leverage of 100:1, 1,000 USD is needed to trade 100,000 USD/CAD.
USD as the Quote Currency
XXX/USD is traded in amounts denominated in XXX. Standard lot sizes are 100,000 XXX and mini lot sizes are 10,000 XXX.
The pip value, which is denominated in US dollars, is calculated by dividing 1 pip of the XXX/USD (0.0001 or 0.01 depending on the pair) by the XXX/USD’s current rate.
Profit and loss are denominated in U.S. dollars.
For one standard lot position size, each pip movement is worth 10 USD.
For one mini lot position size, each pip movement is worth 1 USD.
Margin calculations are based on US dollars. For example, if the current XXX/USD rate is 0.8900 and the leverage is 100:1, 890 USD is needed in the available margin to be able to trade on a standard lot of 100,000 XXX.
However, as the XXX/USD rate increases, a larger available margin in USD is required. Conversely, the lower the XXX/USD rate is, the less required available margin is needed.