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Standing of US Dollar in Forex Trading: The deciding factors in 2016

dollThe speculators excessively exercise the option of forex trading. The discussion on the practice of forex trading cannot meet its destined end without deliberating on the behaviors and movement of US dollar. It is because US dollar is the most pronounced currency of the world. Enjoying the status of the major reserve currency around the globe, dollar is used to depict almost half of the trading volume of the dominant currencies, as it earned the title of default currency for many of the transactions. Thus, US dollar is the major player dictating the terms and conditions in forex trading.

Since, many of the currencies in the world are represented in terms of US dollars, it is really important to shed light on what are major concerns that establish the appreciation and depreciation of dollar in the current years. Therefore, this article is an attempt to discuss the deciding factors that can potentially influence the standing of US dollar in the forex trading in the year, 2016.

Presidential Election

The November 8th US presidential elections will surely have an effect on the financial health of dollar. Whether the pendulum swings in favor of Republicans or Democrats, the political and economic policies of the new President in the White House, will be a major indicator of the strength or weakness of US dollar.

Crude Oil Prices

The year 2016 will continue to witness fluctuations in the prices of crude oil. The crude oil prices will continue to depict downward pressures because of the lifting of ban on Iran’s resources of oil, thereof, resulting in an excessive supply in the market. This move will surely play a part in further destabilizing the already turbulent global oil market. The link between US dollar and crude oil prices resides in the fact that US currency is used to quote the oil prices; hence, a strengthening dollar will put pressure on the resource, influencing commodity driven countries, in turn affecting the US dollar.

Chinese Economy

Perhaps, the highlight of the year 2015 was the event of economic slowdown that hit China miserably. The events of Black Monday and the crash of Chinese Stock Market in August, casted its horrible effects on major global economies, USA being no exception. However, the effect of this slowdown on 2016 still remains to be seen. People’s Bank of China is striving for the gradual easing of the currency towards free float, a move indicating growing reach of Yuan. In addition to this, China’s position as the main US export competitor speaks for itself about any changes in the Chinese economy will not go without effecting US dollar.

Stagnation of Emerging Markets

 Many of the emerging markets of the world, notably Brazil and China, have under performed because of the developed markets, for instance, USA. It remains to be seen whether the trend will continue in the year ahead, weakening the currencies of these economies, thereby, strengthening US dollar. This could have significant effect on the US economy, impeding the US export competitiveness.

Global Economic Scenarios

 The world economic outlook is very fragile owing to the challenges that the economies face in the realm of politics and cyber security. These risks keep on exerting downward pressure on the nations. It is worth mentioning here that the events having no direct effect on the US economy will work towards elevating the dollar position. This is because investors will approach the currency considering it a safe heaven.

Market volatility and fragility is expected to increase in year 2016 because of the uncertainty phenomenon surrounding the domestic and global markets. This will result in increasing the riskiness of the US dollar in forex trading. Howbeit, it remains to be seen that how these above listed factors will shape the outlook of dollar in the coming year.

About Emaad Qureshi