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The Dollar Index
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Created: by Zondor Attachments:2

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The Dollar Index

  #11 (permalink)
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I would be cautious of using the dollar index like this. There are quite a few similar indices you can use; the CRb as I mentioned, the 10yr yield, smallc caps vs. mid caps, the VIX, STIR rates and forward curves, you can go on and on.

the point is that nothing lasts forever. You can have instances when equities and the dollar will go in the same direction, and instances when they dont. It all depends on the reasons behind the move.

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  #12 (permalink)
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There goes my idea out the window

OK, it works now, but nothing lasts forever. So I promise not to use it anymore, and I hope nobody else does, either.

A Blinking Idiot & the Banking System | zero hedge

Quoting 
Lee: Because commodities, such as oil, are traded in Dollars. Commodities are basically a cash substitute at this point. The players don’t want to hold Dollars because the Fed is trashing the Dollar. If you’re a trader outside the U.S., and your native currency is the yen, for example, and you want to buy oil or gold futures, you need to sell Dollars in exchange for the gold or oil futures contracts you’re buying. So your action of buying the commodities in Dollars is in effect creating a short position in the Dollar.
So if commodities collapse and you’re forced to sell your positions, you’ll reverse that short position in the Dollar - trading the commodities back for Dollars. That creates demand for the Dollar. That’s why commodities and the Dollar definitely do have an inverse relationship.
....
Ilene: Why do commodities and the Dollar have a more persistent relationship than the Dollar and the stock market, for which there is an inverse relationship now, but this is not always the case?
Lee: The Dollar/stock market inverse relationship is a correlation due to a common cause - essentially the actions of the Fed. It’s not a cause and effect relationship.
...
Elliott: As you say it is kabuki theater, and as Phil says, we don’t care if the markets are rigged, we just need to know HOW the market is rigged so we can place our bets correctly.


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  #13 (permalink)
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Hi Zondor,

I'm not really sure what you're saying? What I mean to be saying is that relationships like this (i.e. dollar up stocks up, or, say, bonds down stocks up, or whatever) are great but only as long as they are appropriate. What's important I think is to have a handle on what the themes are in the market at the time. There are countless examples when X going up meant that Y was going up too, until the environment changed and X and Y moved in opposite directions.

Some examples of how I use this

* I trade out of london, and often the first things I look at are the currencies - say the flavour of the month is chinese growth, the aussie has the chance to go bid before the mining stocks do - or, the euro has a chance to fall before the bank stocks do. When there is a theme like this, it's OK to be looking at other asset classes to get a handle on the sentiment, provided you are looking at the right things. Or peripheral bond spreads, or whatever.

* another example would be crude. when it was trading in the 120s and 130s, Oil and Equities had a negative relationship. as crude went higher, stocks would dip on rising costs and lower revenues. Fast forward a coule of years, and crude would rise as stocks would rise, on increased risk appetite and optimisim about the US economy recovering.

Look, all I'm saying is dont get married to an "X does this, Y does that" approach. At some point it will bite you in the ass.

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  #14 (permalink)
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Quoting 
I'm not really sure what you're saying? What I mean to be saying is that relationships like this (i.e. dollar up stocks up, or, say, bonds down stocks up, or whatever) are great but only as long as they are appropriate. What's important I think is to have a handle on what the themes are in the market at the time.

I completely agree! The correlation between dollar weakness and risk assets is something that works only as a direct consequence of Fed policies. The market is rigged, so we need to understand HOW it is rigged.

These lockstep correlations are really pretty new. It seems that everything is correlated. That's why so many hedge funds following neutral methodologies have gone out of business. For an example of how ridiculous this has become, it's now helps to watch the NYSE TICK to trade the CL crude oil futures. When/if there is ever a return to normally functioning markets, these nutty correlations will disappear.

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  #15 (permalink)
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OK, we agree on the idea

sorry but I disagree that this happens solely because of a FED policy though (I mean, that might be true now, but not all the time across all realtionships). What I mean is sometimes the FED isn't "rigging" the market, but these relationships still exist.

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  #16 (permalink)
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/DX US Dollar Index Futures

Hi,
Thinkorswin (by Ameritrade) has /DX available for free...demo account no expires.

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  #17 (permalink)
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cpi65 View Post
Hi Zondor,

I'm not really sure what you're saying? What I mean to be saying is that relationships like this (i.e. dollar up stocks up, or, say, bonds down stocks up, or whatever) are great but only as long as they are appropriate. What's important I think is to have a handle on what the themes are in the market at the time. There are countless examples when X going up meant that Y was going up too, until the environment changed and X and Y moved in opposite directions.

Some examples of how I use this

* I trade out of london, and often the first things I look at are the currencies - say the flavour of the month is chinese growth, the aussie has the chance to go bid before the mining stocks do - or, the euro has a chance to fall before the bank stocks do. When there is a theme like this, it's OK to be looking at other asset classes to get a handle on the sentiment, provided you are looking at the right things. Or peripheral bond spreads, or whatever.

* another example would be crude. when it was trading in the 120s and 130s, Oil and Equities had a negative relationship. as crude went higher, stocks would dip on rising costs and lower revenues. Fast forward a coule of years, and crude would rise as stocks would rise, on increased risk appetite and optimisim about the US economy recovering.

Look, all I'm saying is dont get married to an "X does this, Y does that" approach. At some point it will bite you in the ass.


Thank you!

It's nice to see someone with a sound approach....

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  #18 (permalink)
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Now that ICE charges(WTH?)
what are you guys doing to track the USD ?

dxy was my go to... now poop

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  #19 (permalink)
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KahunaDog View Post
Now that ICE charges(WTH?)
what are you guys doing to track the USD ?

dxy was my go to... now poop

Tommorow start on CMEGROUP-CME Bloomberg Dollar Spot Index Futures (BDI)

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  #20 (permalink)
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Obelixtrader View Post
Tommorow start on CMEGROUP-CME Bloomberg Dollar Spot Index Futures (BDI)

must kill the ICE

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