Composition Of The US Dollar Index (USDX)
U.S. Dollar Index:
JAPANESE YEN 13.6%
BRITISH POUND 11.9%
CANADIAN DOLLAR 9.1%
SWEDISH KRONA 4.2%
SWISS FRANC 3.6%
The Swiss Franc and the British Pound, though independent and not components there of, closely mimic fluctuations in the exchange rate between the Euro Currency Unit (ECU) verses the greenback. This is why I’ve repeatedly stated that the Euro has over 60% weighting in the US Dollar Index (USDX).
Lumping them together, you can make the argument that the ECU has over 70% weight: Euro (57.6%) + British Pound (11.9%) + Swiss Franc (3.6%) = 73.1%. Hence, the Euro is a decent, inverse proxy to the buck (Bullish on US Dollar: sell Euro. Bearish on US Dollar: buy Euro).
The other currency I’m championing, the Australian Dollar (alias “commodity currency”) is the value of the Aussie verses the greenback only. It also has no weight in the USDX. Because of that, you can get creative and do things like buy the Aussie AND buy the USDX which effectively makes you long Australia verses the USA’s major trading partners, without much concern over US monetary policies.
Confusing enough? It’s always a good idea to understand how the value of the green in your wallet works. We are at a watershed time for the US Dollar.
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