What is the dollar index DXY?

The DXY indicates that many market analysts and spectators reference and citation. So what is the dollar index DXY or US?

The DXY is a geometrically weighted index of some of the major trading partners of the United States. The product, if the DXY index heavily weighted towards the euro and the European countries that did not join the European Common Market. The components of the DXY index (weighted): Euro (57.6%), Japanese yen (13.6%), Great-Great Britain pound sterling (11.9%), Canadian Dollar (9.1%) Swedish krona (4.2%) and Swiss franc (3.6%). Because of the composition of the DXY, sometimes referred to as the Anti-Euro Index.

convenient to use the DXY index, such as the strength and weakness of a simple method reference to the US dollar (USD). But since all this obscures the fact that it does not reflect the value of the dollar against a broad basket of currencies is enough. The DXY was created by JP Morgan in 1973, and this is only updated once, the introduction of the euro.

The DXY European towards the heavily-weighted currencies that thin is the Canadian dollar, the share of US trade, and largely ignores the important Asia-Pacific trading partners, including Korea, Australia, Taiwan and necessarily in China . Even if you are interested, including the Chinese renminbi (yuan) would be difficult and questionable information is to include the renminbi, because China keeps the currency pegged to a line, which is based on the dollar.

The more accurate the relative value of currencies follow the dollar were to appreciate against the dollar, a senior US trade partners. The top six US trading partners, from high to low are: Canada, China, Mexico, Japan, Germany and the United Kingdom. It's hard to say why JP Morgan created this index, and how did such distinguished. A strange thing about this index would not change it. There is no market that you can go and buy the DXY. The closest you can get in futures and options contracts traded on the Intercontinental Exchange (ICE).

If that is so imprecise, then why is it that is widely quoted? Although there are a more accurate way to compare the USD, absolute accuracy is not always important indicator. Many traders and institutions is likely that they use their own indexes to track the dollar, but for the sake of comparison, it is very convenient to have a single index. The DXY is strongly correlated with the trade-weighted index most of the time. The relative strength or weakness of the USD move is a huge cash flow. As I wrote before, the last step is 10% of the DXY + represents more than $ 1 trillion in nominal wealth destruction. To move of this magnitude does not happen in a vacuum, and the relative weakness of the DXY is appropriate, reflecting weakness in the trade-weighted index.

Although there are gaps, the DXY can not serve as a reliable indicator of USD strength and weakness and can be used as such, as long as one keeps in mind that sometimes skewed when there are large currency moves that occur in Euro .

Source by Christian Koch

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