Draw the graph · Macro · Foreign exchange market
A European recession cuts exports
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Demand for the currency shifts left. Supply of the currency stays put.
Europeans need dollars to buy American goods. Buying fewer means they want fewer dollars at every exchange rate, so the demand for dollars shifts left. The supply of dollars is unchanged. The dollar depreciates.
The dollar depreciates against the euro and fewer dollars are traded.
Common mistake. Students sometimes shift the supply of dollars left because 'less trade is happening.' The change is on the buyers' side. Fewer European buyers means less demand for dollars.
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Lesson: Trade & Exchange Rates