The dollar smile: do you use it?
The dollar-smile theory: the dollar strengthens both when the US economy booms and when global fear peaks, and weakens in between. It's a neat frame for a messy reality.
Does it match your experience?
- where the dollar sits on the smile now, in your view
- how the theory helps or hurts your trades
- the regime where the smile broke down
The DXY guide and risk-on risk-off guide supply the underlying mechanics.
Background: The US Dollar Index (DXY) explained: its six currencies and their weights
The ICE US Dollar Index measures the dollar against six currencies, with the euro at 57.6%. How it's calculated, why its 1973 base and fixed weights matter, and how traders use it.
What currencies are in the US Dollar Index?
The euro (57.6%), Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%) and Swiss franc (3.6%).
What does a DXY reading of 100 mean?
The index was set at 100 in March 1973. A reading above 100 means the dollar is stronger against the six-currency basket than it was then; below 100 means weaker.
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