US Dollar Index Trend Still Bullish, Despite Bumpy USD Chart

April 6, 2010 - PRLog -- For investors looking to get into fx trading, the US Dollar Index, known as the USDX or $USD for short, is a good place to start.

It measures the value of the US Dollar against a basket of the 6 other major international currencies.

Wikipedia notes that it uses a weighted geometric mean. To you and I, it means that the more important the currency is (ie the more of that currency there is in circulation), the more ‘weight’ it has.

The USDX is made up of US Dollar exchange rates against these currencies:

   * The Euro, currency code EUR, weighted at 57.6% of the basket
   * The Japanese Yen, code JPY, weighted at 13.6%
   * The British Pound, or Sterling, code GBP, weighted at 11.9%
   * The Canadian Dollar, code CAD, weighted at 9.1%
   * The Swedish Korona, code SEK, weighted at 4.2%
   * The Swiss Franc, code CHF, weighted at 3.6%

Note that the index was started in March 1973, and its composition was changed once in 1999 to accommodate the Euro. If it was started today, it is unlikely that the SEK would be included, and the CHF would be questionable. The Australian Dollar (AUD) and Indian Rupee (INR) would surely be more representative candidates, and if ever the Chinese Yuan (CNY) was floated, it would surely become the largest constituent.

Anyway, as things stand, more than half of the Index is based on the Euro, so that is the key to much of the index’s movement.

As the Greece and wider PIGS crisis engulfed the Euro zone, the USD dollar broke out and went on a strong run at the start of the year.

In the last few days it has trended down, partly in response to the sense that the Greece crisis has been ’solved’ by the joint EU/ IMF rescue structure.

In reality, although a package is in place, the underlying structural issues – untenable debt loads and unworkable political structures – continue to exist in the EU. Weakness will therefore continue to challenge the Euro.

What of the US Dollar?

While the US also faces untenable debt loads and broken politics, it has one unique advantage. The US Dollar is the world’s reserve currency. The world’s economy is built around the need for all countries to either export directly to the US, or to other countries that export to the US, in order to gain access to the US Dollar, the fundamental currency of trade, particularly in oil and technology.

To read the rest of this article at http://forexcare.net/, go to:

http://forexcare.net/usd-chart-hits-bump-usd-index-trend-...

# # #

EconomyWatch.com is the world's largest global, independent, economics community. Every month we serve over 750k users, who read and discuss economics, investing and finance topics.