US Dollar Index (USD INDEX -USDX)
The US Dollar Index or USDX is a currency index that describes the value of the US dollar against a basket of major Forex currencies.
The US Dollar Index
USDX can measure the overall strength of the US Dollar against the strength of other major Forex Currencies. In addition, Forex traders can assess technical analysis on the historic chart of the USDX Index by drawing support and resistance, trendlines etc.
Six (6) Forex Currencies and their Weight
The USDX uses a weighted mean system for measuring the USD value against a basket of six major Forex:
Table: Six Forex Currencies and their Weight on USDX
|
FOREX CURRENCY |
SYMBOL |
WEIGHT (%) |
|
European Euro |
EUR |
57.60% |
|
Japanese Yen |
JPY |
13.60% |
|
British Pound Sterling |
GBP |
11.90% |
|
Canadian Dollar |
CAD |
9.10% |
|
Swedish Krona |
SEK |
4.20% |
|
Swiss Franc |
CHF |
3.60% |
|
Total |
100% |
|
Note: This basket of currencies does not include some major trading partners of the US such is China, Brazil, and Korea.
Chart: The Current US Dollar Index
Source: FinViz Currency Indices
The USDX Index History
The Index was created by the US Federal Reserve, following the ending of the 1944 Bretton Woods agreement. The USDX started in 1973 with a base of 100. Every value of the index since 1973 is relative to this 100 base. That means that if the USDX index is found at 200 then it has performed 100% against the basket of the six (6) major Forex currencies. The weighing of the USDX Index has been altered once, during 1999. This modification happened as the European Currency (Euro) was launched in January 1999, note that the net representation of European currencies remained unchanged at 57.6%. Before 1999, the original USDX included 10 currencies. That means that Euro replaced 5 European Currencies: the West-German Mark, the French Franc, the Italian Lira, the Belgium Franc and the Dutch Guilder.
■ German mark (DEM), weight 20.8%
■ French franc (FRF), weight 13.1%
■ Italian lira (ITL), weight 9.0%
■ Dutch guilder (NLG), weight 8.3%
■ Belgium franc (BEF), weight 6.4%
USDX Updates
The index is updated on a 24/5 basis and that means whenever the US Dollar capital markets are active:
■ Starts at Sunday evening {New York time}
■ Ends in late Friday afternoon {New York time}
Trading the USDX
The USDX index can be traded as a futures and options contract but also via ETFs and mutual funds. The USDX futures contract can be found in the ICE (InterContinental Exchange) which absorbed the New York Board Of Trade during 2007. The symbol of the USD Index futures is DX.
The ICE USD Index and ICE Futures Contracts
ICE USDX Futures Calculation
The ICE USDX Index is officially calculated by Reuters in real time (15 seconds change). The price of USDX
used for calculation is based on the mid-point of the book
bid/offer in the component currencies. The Bloomberg code of the USDX is DXY and called also as “Dixie”.
► Dollar Index Spot at Bloomberg
USDX Futures Contract Specifications
The size of the USDX Index futures contract is $1,000 x the value of the index. The smallest price increment for trading the USDX futures contract is .005 or else $5. The USDX contract is settled quarterly every year. Note that the USDX futures contract is a physically delivered contract and that means that if the USDX futures contract is held until the final settlement, the holder of the Long Position must deliver the basket of the six currencies in the Index. From the other hand, the holder of the Short Position must pay in US Dollars and receive the basket of the six currencies. The USDX futures contract receives liquidity directly from the global OTC Forex market.
■ US Dollar Index (USD INDEX -USDX)
George Protonotarios for CarryTrader.com (c)
