The Dollar Index

The Dollar Index (USDX or DXY) is an index that measures and reflects the strength or the weakness of the USD, learn what it is and how to trade it here…

The Dollar Index

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The Currency Basket

The largest component of the US Dollar index is the Eur (EUR) which makes up 57.6% of the weighting.

Second largest is the Japanese Yen (JPY) at 13.6% followed by the Great British Pound (GBP) at 11.9%.

The Canadian dollar (CAD) weighs in at 9.1% with the Swedish Krona (SEK) and the Swiss Franc (CHF) making up the remainder at 4.2% and 3.6% respectively.

This is the US Dollar index and it’s weightings as of 2014.

US Dollar Index History

The US Dollar index was actually born in March 1973 and was set at 100.  Since then, it has seen a High of around 150 in February 1985 and a Low of around 70 in March 2008.

When the index rises it indicates US Dollar strength and. when it falls it indicates US Dollar weakness.

Personal Story

The Dollar Index is not a popular instrument for Forex traders, at least not the ones I know.  Most traders I know prefer to trade Currency pairs as do I.

However…

Many Forex traders I know, including myself, are also long term investors.  This means we buy and hold stock and fund positions in our portfolio/pension vehicle for our future needs.  When we have exposure to US stocks or in particular US denominated funds we do from time to time take out a US Dollar Index ETF position in our portfolio, such as:

-  The PowerShares DB US Dollar Index Bullish Fund (UUP)

-  The PowerShares DB US Dollar Bearish Fund (UDN)

We use these ETFs which mirror the US Dollar Index to hedge our portfolio performance in line with our Bullish/Bearish US Dollar market view.  Those seeking more protection in their portfolio can also consider the 3x leveraged funds on offer, UUPT and UDNT respectively.

I have never had a need to use leverage within my long term portfolio.

Continue reading and access the next topic below…


How To Trade The US Dollar Index

You can actually trade the US Dollar index just like any other instrument.  This assumes your broker supports it.  Either call them or look for the symbol USDX or DXY.

Now you know what the US Dollar Index and how to trade it!

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