The long term outlook for the U.S. dollar is bullish, but that doesn’t mean that the dollar will keep going up, or that it will go up against each of the other three major currencies. However, with gold falling in price, and the U.S. stock market in turmoil, it’s easy to say that the dollar will keep getting stronger on the international front.
When formulating your short term Forex or binary options trades, it’s important to have this fundamental outlook in mind. Each trade still needs to be assessed individually, using your technical indicators of choice, but knowing that the dollar has a strong projection ahead of it does help to create a more accurate framework within which to work.
As a general rule, it is dangerous for traders of any sort to go against the overall trend. This is especially true in trading strategies that have a fixed time period, such as what every single binary option entails. However, knowing that the dollar is expected to move up, you can cherry pick the best trading situations out of this and devise a better larger strategy.
The first step to doing this is to find weaker currencies to pair the USD up with. Looking at the other major currencies is tempting, especially because the euro and the USD is the most popular pair, both in the general Forex market and as a binary option. However, going with a major pair isn’t always the best choice. Even though the yen, the pound, or the euro might not be as strong as the dollar at any given moment, their large trading volumes gives them more stability and makes them move far less on the average trading day. Yes, there are still opportunities for successful trades in the major pairs, but lesser traded currencies offer better chances because their weaker trading volume can create wilder price swings, allowing you to have a higher success rate in your predictions of movement, and this cannot help but lead to a higher correct trade rate.
There are some big hurdles ahead for trying to determine what the dollar will do. The big question is what the Federal Reserve will do when it comes to rates. It’s expected that a decision will be made in the middle of December, and a rate hike will likely send the dollar up immediately. This is a good thing for those that want to go long on the dollar, and it’s vital to keep an eye on this if they are going to be trading currency pairs in any way over the next several weeks. The Fed’s decision will not have a long last impact on currency prices, but it will have one in some fashion. This is perhaps why using binary options for the near future is a better tool than using a traditional Forex broker, if only because small changes in the root price will still generate big profits for those that use binaries to profit from this. There’s a chance that a high spread, small pip changes, bad timing or some other extraneous influencer will chip away at profits if Forex brokers are the sole method used to try and profit from this event.
Also, keep an eye on what will happen to the dollar if the Fed does not raise rates. The immediate fundamental strength of the dollar largely relies upon the assumption that a move in this direction is a certainty. If mid-December comes and goes and the Fed does nothing, there’s a possibility that the dollar’s projections could be completely reversed and a selloff could occur. Be prepared for either.