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A New Forex Trader's Intro to the US Dollar Index

Written by A Forex View From Afar on Saturday, January 12, 2008

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The US$ is under pressure because of growth forecasts, debt obligations and being on the wrong side of Oil and Gold movements. The one saving grace is that US Treasury Notes, the vehicle that overseas investors move to in times of fear, can only be purchased in US$’s and therefore those investors need to swap their local currency to buy US Dollars, and then buy the Treasury Notes. That however has been tempered by the rush to get Long on Gold, the ultimate hedge against Inflationary pressures.

The US$ is on 90% of all currency trades, it is a dominant currency. The Euro is now making up a large portion of those trades, and at 58% of the Dollar Index, one cannot move very far without automatically impacting the other.

The Index is made up of Euro 58%, Yen 13%, Pound 12%, Canadian 9%, Swedish Kroner 4% and Swiss Franc 4%. The Index was developed in March 1973, its value each day is reflection of the value of the US$ now compared to what it was worth in 1973. A read of 75.00 on the Index equates to the US$ value being 75% of what it was three decades ago. A weaker dollar> It here already.
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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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