The United States dollar is indeed one of the major currencies in the money market. If you want to excel in trading forex USD with other pairs, read on.
Just because a currency pair is listed on the forex market doesn’t imply all are created equal. In fact, different pairs tend to be influenced by varied factors and understanding this can help you become profitable. The USD is a popular currency but you need to understand the forces that influence the trends.
The significance of USD in forex
The USD has been a significant currency around the globe given that it is used as the major world reserve currency. Besides being used as a default currency for most important transactions, it accounts for more than half of the currency transactions. Basically, this is because the US economy tends to be among the leading global economies.
There are plenty of models and theories that attempt to forecast the forex USD currency exchange rates based on price levels and interest rates. In real life, some of the models don’t play out perfectly but since traders rely on multiple factors when making a buy or sell decision, the momentum created by these speculations can heavily influence the direction of exchange rates. Simply put, currency behaves like a product that is good supply and the prevailing prices are determined by the underlying forces of demand.
Basically, the appetite for forex USD is greatly driven by the role it plays in the global trade but the value is determined by the economic data available. As such, if the data that favors the economy the USD gains more value but the opposite is also true. While it also tends to be under the influence of major global events, history has proven that this currency is quite resilient and can get stronger in the face of bad events.
The appropriate time for trading the forex USD/JPY
While there are certain timeframes when you should be cautious with forex USD/JPY, there exists a window of opportunity when this pair is lucrative. Whenever you can, day trading the pair between 1200 and 1500 GMT can be ideal since New York and London is quite ready for bulk trades within this time. While Tokyo is still closed, the two-hour window tends to present the largest movements in price. As such, the potential for profit is high but spreads are tight.
Basically, this timeframe raises the efficiency of your trades and you have to a good chance of deploying trading capital thanks to the heightened volatility. Nevertheless, it is important to realize that daylight savings have the potential to alter the most opportune time by an hour and hence you should always countercheck the volatility statistics to ensure you are safe.
While the time suggested here represents an action-filled segment of the trading day, there are other instances when you can get outstanding trades for several weeks or even months. By checking the charts indicating volatility, you can identify specific times when the pair is quite active. Just like most pairs, the USD/JPY is on the market around the clock hence you should be keen to spot volatility spikes on the charts.