Inflation hasn’t really been a huge issue over the last several years in the United States. The dollar, although becoming stronger in other countries, hasn’t really changed much in the United States, and many investors are taking notice of this. This is especially poignant for retirees that have been told for years that they need to account for inflation. The payoff has been that their dollar is holding its value far better than what was expected. This might not continue, though.
Starting in the late 80s, though, every time that the unemployment rate has hit a bottom, the inflation rate has skyrocketed. Inflation is a legitimate issue as it decreases the buying power of the dollar. The Federal Reserve has safeguards in place to deal with this issue, and that’s part of the reason why interest rates are going back up. It makes it so that it is harder for big businesses to get money, thus cutting into some of the inflation that is likely to follow if the unemployment rate keeps dropping as it has been. Some estimates say that the unemployment rate will bottom out at 4.7 percent, which puts it right on par with some of the lowest bottoms that the country has seen over the last 30 years.
As a short term trader, you need to understand this fundamental interaction on how the power of the dollar interacts with other aspects of the market. Obviously Forex traders will need to know this information as they take out positions with the strong dollar and other currencies, but those that focus on other assets will need to understand the relationship between the dollar and their asset of choice. Binary options traders that focus on a wide variety of different trading products will especially need this knowledge, and although it may be very broad in its nature, specific knowledge is needed if you want to improve your rate of success with your trades.
Of course, there is also another concern that will occur here. What if inflation continues to be absent? What if the dollar doesn’t peak when it is supposed to? This could create an emergency situation in the United States economy, and as we watch stocks drop in value and the dollar starts to do the same, the U.S. could find itself in a tough situation. This is actually similar to what is going on in Canada right now, but because of the smaller Canadian economy, the hypothetical situation in the U.S. would not have the same worldwide impact.
How should traders approach this second situation? One, short trades will look much more attractive. Even the most stable of companies will see drops in price if this happens, and that means that those that sell short, or use binary put options, will have an advantage. This eliminates many people as they are not able to afford to use the traditional short selling methods, or they do not know how to properly use put options. Becoming more familiar with the technical indicators that signal selloffs is a must here. Having a greater depth of understanding when it comes to using candlestick charts can be very helpful, too, especially if you focus on the ultra short term trades like 60 second binary options.
The silver lining of all of this is that the second scenario is not very likely. With wages going up across the country (think about New York City’s $15 minimum wage battle), the beginning stages of inflation are getting primed to begin. It hasn’t happened yet, but it’s becoming more and more likely. Still, it’s important to have a backup plan if a worst case scenario does develop.