The World Revolves Around Forex Dollar Trades
In the currency markets, forex dollar trades are what make the world go around. In these uncertain times, the dollar is the preferred intermediary currency for a large majority of trades. Part of the reason for this lies in the principle of capital flight. Many investors have grown alarmed at the prospects of survival for the euro and have moved into greater involvement with US markets. While Germany is also seen as a safe haven for Eurozone investors, this security is tempered by Germany’s participation in the euro, which essentially yokes its forex trades to the prospects of unstable economies such as Greece or Italy. Chinese currency controls make the renminbi unsuitable as a forex candidate, even as the smart money inside China gradually decouples their investments from an increasingly unstable economic situation and moves into dollar denominated assets, including forex dollar contracts, as well.
The Return OF Forex Dollar Dominance
The uncertain prospects of its currency competitors such as the yen, pound and euro means that capital is increasingly being directed into the US economy, which operates in dollars. This in turn drains away capital from overseas economies and slowly undermines their economic prospects. Likewise, developments in the American petroleum industry are moving the United States rather surprisingly towards the prospect of energy independence and even renewed status as an energy exporting nation.
All of these factors point to a US economy in recovery even as the Chinese and European economies encounter trouble. This translates into a strengthening dollar on the currency exchange markets. While intermediate events are bound to result in short term reversals of this basic outcome, the long term expectation is clearly for the return of King Dollar. Traders involved in the forex dollar markets should therefore plan to be long in the dollar as a long term strategy, while playing quick expiring shorts to profit from the random events that are bound to cause the markets to blip temporarily.
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