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

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi