Skip to main content

Which dollar index?

The Bear Mountain Bull tips us to a rather interesting Minyanville article that outlines the differences between the much-watched US Dollar Index and the Fed's trade-weighted dollar index.

Why does it matter which index you use? Because every picture tells a story (don't it), and these pictures each tell a different tale about the present and future course of the US dollar.

As Minyanville's Lance Lewis tells it, the US Dollar Index is heavily weighted towards the euro (the European currency accounts for 57% of the index weighting), and this construction distorts our view of how the US currency is trading against the currencies of its major trading partners.

While the US Dollar Index continues to defend its long-held support above the 78-80 area, the trade-weighted index shows another picture, one of a potential breakdown through very long-term support. In fact, a breakdown through the 200 month moving average did occur shortly after the article was published.

Why is the movement in the trade-weighted index so important to understand? Read Lewis' article to find out more about the movement of the dollar and its effect on inflation and the gold price.

For more news on the market's view of the various currency indexes, see these recent Bloomberg stories(1,2,3). Just to differentiate, I believe the index that Lewis has charted in his article is the Federal Reserve's "Nominal Broad Dollar Index", while those in the Bloomberg articles may refer to some of the Fed's other trade weighted indexes.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.