The U.S. dollar index is a
futures contract listed on the New York Board of Trade (NYBOT) and Dublin-based
Financial Instruments Exchange (FINEX) futures exchanges. The dollar index is
an average of the value of the U.S. dollar against a basket of six other major
currencies, but it‘s heavily weighted toward European currencies.
The exact weightings of other
currencies in the U.S. dollar index are:-
- Euro: 57.6 percent
- Japanese yen: 13.6 percent
- British pound: 11.9 percent
- Canadian dollar: 9.1 percent
- Swedish krona: 4.2 percent
- Swiss franc: 3.6 percent
The European currency share of
the basket -Eurozone, United Kingdom, Sweden, and Switzerland -totals 77.3
percent.
The U.S. dollar index is great
parallel universe to the spot U.S. dollar currency pairs. As a currency trader,
be sure to follow the U.S. dollar index, especially its technical developments.
When the market outlook for the US dollar is uncertain or mixed against other
major currencies, the US dollar index can frequently provide a clearer picture.
If the U.S. dollar index breaks key technical levels, many currency traders
react in the major spot currency pairs, building on the break of the U.S.
dollar index. The flows can go either way - sharp moves in spot currency pairs
may spur similar moves in the U.S. dollar index, or breakouts in the dollar
index may provoke sharp adjustments in the spot U.S. dollar pairs - so look to
the U.S. dollar index as another key indicator of the overall direction of the
U.S. dollar.
