subject: 3 More Fundamentals In Forex Day Trading [print this page] Three more fundamentals in Forex day trading that should always be considered by every good trader are employment, national debt and housing. When it comes to the employment figures, these are one of the biggest measures of an improved economy.
Employment in the US is at a 40 year low in 2010 and many economists believe that these numbers wont change until the politicians figure out a way to create jobs. Bad employment numbers mean the US dollar is going to get weaker. A good trader will watch each month as new employment figures are released. Then he or she can better determine whether the US dollar will strengthen or weaken.
Second in our list of the next three fundamentals is the national debt. This is not a changing number as much as it is a general sentiment. The national debt is near 13 trillion with a $700 billion account deficit but this should really be looked at in relation to how foreign investors view the prospects of the United States future. If they like the future, the US dollar will strengthen. If they dont like the future, you will see the dollar weaken as it has done in the latter half of 2010.
Most significant, in terms of foreign investment and the national debt are China and Japan as well as the oil-producing countries like Canada and Middle Eastern countries. These countries need US dollars in order to make sure their economies keep functioning. The US dollar represents stability to these countries because of military strength, mass consumption, and a proven system of government.
The most common way for these countries to collect US dollars is through the purchase of US Treasuries and, the more they do it, the stronger the dollar will get. Of course, these treasuries will be paid back in US dollars at a higher yield but the ongoing investment from other countries will always make the dollar stronger.
Many other factors can make treasuries more popular and driving up the interest rates. The thirteen trillion dollar debt and the seven hundred billion dollar account deficit are the most significant of these factors and countries like China need to feel like the United States is going to repay these in order to stay interested in purchasing these treasuries.
The U.S. debt can actually be reduced by allowing the dollars value to decline so many investors see this as a trick of the US government to Pay back Peter by borrowing from Paul. Letting the dollar decline through stimulus measures will make it easier to pay back the original loans that were made to China and Japan.
With this weakening strategy on the part of the US government, anytime a foreign government demands payback on their treasuries, it will likely have less value in relation to their own currency. This is because the dollar's value will be less. Countries like China and Japan are not so foolish to let this happen while they make their own economies stronger. They will use their own surpluses to make different investments in their own infrastructure. This is a way of diversifying away from US dollars and into other things. Even the Euro has gained popularity in the last half of 2010.
The final consideration in terms of fundamentals is housing. As the interest rate on a treasury note increases, so do the interest rates on mortgages. This makes it more expensive to buy a home and the demands for homes will decrease. This will have a negative impact on the economy and create a weakening dollar.
Over time, there will be higher rates that will start to increase demand for Treasury notes so dont get too comfortable thinking you know the direction of the market. It is best to watch the treasuries each day to see these swings back and forth. The dollar will go up and down according to these swings but you will have a better idea of which way things will go when you understand these fundamentals of Forex day trading.
