Hi Dave

Awesome site for any trader

But something that is key in the FX market is the moving (strengthing/weakening) of currencies

So, if I understand this tutorial correctly on exporting, importing and trade flows

- Heavy Importing Countries -> Weakens that country's currency

The word weakens is the key here. We prbl need to look at an example..weaken in terms of other currencies?

If we take a example of USD/JPY and we focus on the importing of USD, if we keep everything else the same and look at the importing factor only, ...the more and more USD imports the "weaker" USD is going to be against JPY...

Thus if we start with USD/JPY say at 120.00 and USD is importing more and more goods from JPY, this exchange rate will then rise to 122.00, 123.00 ...and so on ?

The video tutorial is found here:
What Moves the Forex Market? - Trade Flows

[David Waring]

Hi Oegma,

Thanks for the compliment I am glad you like the site.

I like where you are going with this as I agree that this probably needs more explaining and some examples will help.

To answer your first question yes when I say a currency gets weaker I mean against another currency or currencies depending on the situation.

You are correct that generally if everything else remains equal and a country begins to import more goods then their currency should weaken against other currencies.

In your specific example of the US importing goods from Japan you are also correct that if everything else remains equal and the US begins to import more from Japan then the USD would be expected to weaken against the JPY.

If this were to happen the exchange rate would however move down not up as you have stated below. Remember from our lesson on How to Read Forex Quotes that the rate you see in the window is how much it takes of the second currency in the pair to buy one of the first. So if the USD is weaker then it should take less Japanese Yen to buy 1 USD and therefore the rate should move down.

Hope that helps. Please feel free to post if anything is unclear or if there are any other questions.

Best Regards,
Dave