Dollar Index Is Down -- but Not Out
All of this talk of quantitative easing has encouraged currency traders to cover euro shorts, and in turn sell the U.S. dollar. After peaking in late July, the U.S. Dollar Index futures contracts traded on the ICE Exchange have declined nearly 4%. Although it is difficult to make an overly bullish case for the dollar, it might be even more challenging to arrive at a bullish conclusion for any of the other major global currencies. Accordingly, the dollar could return by default to its coveted spot as the best house in an undesirable neighborhood, even if it is just temporary.
The Dollar Index futures contract represents the value of the greenback vs. a handful of prominent global currencies, specifically the euro, yen, British pound, Canadian dollar, Swedish krona, and the Swiss franc. Approximately 60% of the index is comprised of the euro, which results in a high negative correlation between the Dollar Index futures contract and the euro currency. Accordingly, traders bearish on the euro might consider buying Dollar Index futures as opposed to trading the euro outright. Because it is an index, it is also a far more diversified trading vehicle relative to the euro. In addition, the Dollar Index futures contract can be traded with a relatively low margin requirement and far less volatility than most outright currencies....363 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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