Shaza's comparison of $USD with the Fed's trade weighted dollar index is
I have done my best to produce a chart of the two indexes over the full
time span of the Fed's chart.
The Fed's chart is based on January 1997=100. I have zoomed in on $USD
and as near as I can judge $USD was about 88 at the beginning of January
1997. The high on $USD was 121.29 which is about 38% above the January
1997 datapoint, and the low on $USD was 70.7 which is 20% down from 88,
ie: 80 on the Fed's index.
I have overlayed the Stockharts $USD on top of the Fed's index and
attempted to correlate the dates, the 1997 starting point, the high, and
the low. The correlation isn't perfect (the software I was using was not
really designed for this), but I thought the result was worth looking
at, so here it is.
If anyone can see an error in my methods then please don't be shy, point
it out, this blog is meant to be a co-operative effort.
If my overlay is right the following are worth mentioning. First, $USD
is more volatile than the Fed's index. Second, $USD is presently almost
exactly where it started in 1997. Of course this doesn't mean a dollar
is worth what it was in 1997 in terms of goods and services, it just
means it can buy more-or less the same European-centered currency basket
as before. On the Fed's index the dollar has done a bit better than this
- but not much. Third - as Shaza says - the current hype about the
dollar's recovery is over-done. The dollar is up about 15% in the last
few months on the $USD index but only about 6% on the Fed's index. This
hasn't stopped the last 6 months being a great Forex trading opportunity
but on the wider view the dollar has not improved very much.
I do hope that Stockcharts takes up Shaza's proposal for including the
Fed's index. It would be much more useful for those who want a better
Macro view. But we would still need to follow $USD as long as that's
what the majority of other traders use. At the moment Gold is acting
inverse to the USD index, the one Kitco uses.