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Trading The US Dollar
The most profitable activity for many traders in the last month has been trading the US dollar. The dollar out performed stocks, which fell of late, and certainly out performed gold futures, which have dropped $300 an ounce since their recent high. Selling gold has been more the order of the day than buying the shiny stuff. In trading the US dollar traders use fundamental and technical analysis of currency pairs such as the EUR/USD, USD/YEN, or USD/GBP. With Candlestick patterns as a guide currency traders buy and sell one foreign currency versus another in search of profits.
Trading the US dollar in the Forex market is primarily the business of companies doing business internationally. If a US company purchases machine parts manufactured in Germany they will typically need to convert their dollars and pay with Euros. In order to reduce the risk of changes in currency rates in such a case the US company will often hedge their currency risk by buying calls on the Euro with US dollars. If the Euro falls in value the company need not execute the contract and will simply pay less in dollars for their purchase. If the Euro recovers the company will execute the contract in order to pay the expected price in dollars for their purchase. Trading the US dollar in this case is a matter of hedging currency risk and is a necessary aspect of foreign trade. However, not all traders of foreign currencies do business internationally. Anyone willing to learn the ropes of trading Forex can profit from trading the US dollar or other currencies. Traders familiar with Candlestick analysis will find this technical analysis tool just as valuable in trading the US dollar versus the Yen, British Pounds, Swiss franc, Euro, Australian dollar or Canadian dollar as it is in trading stocks and commodities.