Does the Boom on Wall Street Affect the Dollar?

The U.S. dollar is the world’s most heavily traded currency, usually paired up with the EU’s euro. But, with all of the gains that U.S. stocks have been making on Wall Street over the last several months, has the dollar been losing its grip in the worldwide trading community?

History would indicate that yes, this will happen. Typically, what has happened in the past is that as the U.S. markets get stronger, the dollar loses value in a sort of negative correlation. This is not a hard and fast rule, but it does make sense. When you are not hoarding dollars, but instead investing it, the demand for the dollar goes down and the supply goes up. Basic economic theory says that this will negatively impact price. But, the world’s economy is so huge and complex that this doesn’t need to happen every single time dollars are spent. Other currencies will also affect the price of the dollar, which is why you need to look at the bigger picture when trading within the Forex market. In other words, if other currencies are being spent faster than the dollar, even the weak demand for one currency can be offset by an even weaker demand for another. And this happens far more often than you might think.

To give you an idea of the current economic situation in this area of focus, let’s look at four major indicators: the Dow Jones Industrial Average, the S&P 500, the EUR/USD pair, and the USD/JPY. Right now, the Dow and the S&P are at record highs. This would lead you to believe that the dollar is at record lows in price, and that the euro and the Japanese yen are at high points by comparison. This is definitely not true, though. For example, one euro is only worth about 18 cents more than it was a year ago at this point. And the recent movement over the last few months has actually seen the dollar gaining value in comparison–even as the U.S. economy and its companies get stronger and stronger. Also, the yen has also changed by about 8 pennies (looking at 100 yen instead of 1 euro), in favor of the yen. And again, the recent movement of the USD/JPY has seen the dollar gaining value, and the yen losing out.

So the comparisons cannot be a directly negative correlation. And for the U.S. based trader, that is a good thing since it means less loss of your dollar’s value both domestically and internationally. One problem created by international trading is currency exchange, and when the dollar is strong, U.S. traders have an advantage since there is no loss when currencies are converted. For people that trade binary options, though, there is absolutely no difference created. This doesn’t make much of a difference in the instances when the dollar and U.S. stocks are up, but when one or the other is struggling, then binary options are the way to go. Binary options might seem inferior because there is no change in ownership taking place, but this also creates an advantage since there is no fee for that to happen. Binary brokers make money off of the gap between the payout rate and the amount invested by traders, and not on commission or sales charges.

This means that during the majority of the time, binary options have less of an upkeep cost than other types of trading. They are not fickle to the market, but rather simply allow you to make a profit off of changes in price independent of everything else.