1. Advanced Topics Econometrics: Interrelations between Equity, Currencies and Commodities Markets Fundamental News Trading-Step by Step Guide to news events analysis and trading Turtle Trading The COT Reports (Futures peek)

2. Econometrics: Interrelations between Equity, Currencies and Commodities Markets

3. The Dollar Index (USDX) The U.S. Dollar Index consists of a geometric weighted average of a basket of foreign currencies against the dollar. It's very similar to how the stock indices work in that it provides a general indication of the value of a basket of securities-other major world currencies Let us have a look at the Basket…

4. The Basket The U.S. Dollar Index consists of six foreign currencies. They are the: Euro (EUR) Yen (JPY) Pound (GBP) Canadian dollar (CAD) Krona (SEK) Franc (CHF)

5. How Many Countries are included? There are 21 countries total, because there are 16 members of the European Union that have adopted the euro as their sole currency, plus the other five countries (Japan, Great Britain, Canada, Sweden, and Switzerland) and their accompanying currencies. The USDX is a good tool for measuring the U.S. dollar's global strength because many other currencies follow the U.S. Dollar Index closely

6. USDX Components Geometric Weighted Average

7. The Composition With its 16 countries, euro makes up a big chunk of the U.S. Dollar Index-57.60%. This followed by the Japanese yen-13.60%. GBP-11.90% CAD-9.10%. SEK-4.20% and CHEF-3.60%

8. When the Euro falls, where goes the USDX? When the Dollar rallies, EURUSD drops or falls When the Dollar Index falls or drops, EURUSD rallies When USDX goes up, EURUSD goes down and vice versa

9. USDX Daily Chart

10. EURUSD Daily Chart

11. How to Read the USDX

12. Reading the USDX The Index is calculated 24 hours a day, 5 days a week It measures the dollar’s general value relative to a base of 100.000 The start of the index was March 1, 1973 when floated rates of exchange was allowed by the world’s biggest nations in Washington D.C. The start date of the index is also known as the base period

13. Reading the USDX cont’d Let’s assume the current index reading is 84.600, USDX will be -15.40% (84.600- 100.000). This means that the index has fallen 15.4% since start. And if the current reading is 117.912, the USDX will be 17.91% (117.912-100.000). This implies that the index has risen by 17.91% since start.

14. The U.S. Dollar Index Formula USDX = 50.14348112 × EUR/USD^(-0.576) × USD/JPY^(0.136) × GBP/USD^(-0.119) × USD/CAD^(0.091) × USD/SEK^(0.042) × USD/CHF^(0.036)

15. Putting all Together for FX Trading Always note that a breakout in the USDX will almost immediately give rise to a breakout in most USD pairs Always pay close attention to the position of the USD in whichever dollar pair you are trading to know what direction to move as USDX moves in a certain direction Example 1: If USDX goes up, EURUSD, GBPUSD, AUDUSD etc will go down. And if USDX goes down the will go up. Example 2: If USDX goes up, USDJPY, USDCHF, USDCAD etc, will go up

16. USDX Chart

17. USDCHF CHART

18. Always Remember… If USD is base currency, e.g. USDCHF then USDX and the pair will go the same direction If the USD is counter currency, e.g, EURUSD then USDX and the pair will go in opposite or inverse directions

19. The Dollar Smile Theory Stephen Jen, a former currency strategist and economist @ Morgan Stanley, came up with a theory and named it the "Dollar Smile Theory.“

20. 3 Main Scenarios That direct the behaviour of the U.S. dollar.

21. The 3 Scenarios at play Scenario 1Risk Aversion Dollar appreciates due to risk aversion. The first part of the smile shows the U.S. dollar benefiting from risk aversion, which causes investors to flee to "safe-haven" currencies like the dollar and the yen. Since investors think that the global economic situation is shaky, they are hesitant to pursue risky assets and would rather buy up the less risky U.S. dollar regardless of the condition of the U.S. economy.

22. Scenario 2: USD Weakens to a New Low Due Weak Economy Dollar drops to new low. The bottom part of the smile reflects the lacklustre performance of the Greenback as the U.S. economy grapples with weak fundamentals. The possibility of interest rate cuts also weighs the U.S. dollar down. This leads to the market shying away from the dollar. The motto for USD becomes "Sell! Sell! Sell!“

23. Scenario 3: USD Strengthens Due to Economic Growth Optimism begins to pick as the US economy begins to show signs of growth. Expectation of strong GDP growth and future Interest Rate Hikes all move to stimulate the economy again, and the dollar begin to strengthen in the process due to foreseen economic growth

24. Warning! It is important to note that all economies move in cycles, and more important is knowing what cycle the economy you are focusing on is in

25. Getting your own USDX Indicator for META TRADER4 (MT4) Thank God we found one and included it in this package. It’s a custom indicator code written by