If you don't know what DXY is and you are a trader, then read..

TVC:DXY   U.S. Dollar Currency Index
Let's talk about DXY .

TLDR: DXY is important and you should keep your trading eye on it.

For those that don't know, DXY is the US Dollar Index . It measures the performance of the USD compared with a basket of six other currencies that are major trading partners of the United States.
By far the largest component is the EUR, followed by JPY, GBP, CAD, SEK and CHF.

We use DXY to track the relative strength of the world's biggest currency. The health of the USD drives so many things.

Yesterday's stream covered the probability of the FOMC (the body in the US that determines interest rates) changing their language regarding their Quantitative Easing ( QE ) program. You can watch the stream here (warning there is a slight echo at first):

I wanted to add some explanation to some of the topics I covered. I predicted that their language in the statement would change, and that it would point more towards them ending QE faster than expected. What this means is that they are hinting at tightening interest rate policy.

Higher US Interest rates = stronger USD, because you can get more interest depositing your cash in a US bank in USD than you could get yesterday.

I also pointed out some Technical Analysis we had done here at Mayfair, showing the timing was perfect for a USD rally.
So far so good, and the FOMC did more or less as I expected, and the DXY rallied strongly:

Now here's the idea I posted on May 28th showing the same thing:


DXY (USD) strength has ramifications across loads of other markets. This is the point some people may not realise, so i thought I would explain it.

If you buy Gold , you pay (usually) in USD. If the USD is stronger, you need fewer USD's to buy the same amount of Gold . so the Gold price goes down:

The same is true of US500 Index:

While BTC is also priced against the USD, 1-2% moves in the USD aren't going to have too much of an effect on something that can move 5% a day for a long time!

DXY's behaviour is something to keep your trading eye on.


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