U.S. Dollar Index has not been a popular index to be read. In fact, many investors have no idea what it has to do with trading.
Which is absolutely wrong, I would say.
Look at the 1 year U.S. Dollar Index. The bottom of DJI on March 2009 coincides with the peak of U.S. Dollar Index.
To bring the picture in focus, we also can look closer at the intraday chart last Friday, when many have sleepless night. The bottom of DJI coincides with the peak of U.S. Dollar Index again.
So, what so great about U.S. Dollar Index? The relationship between U.S. Dollar Index with DJI, commodities and bonds etc is very close, even though not one to one.
We are located at difference time zone with US. U.S. Dollar Index is traded almost 24 hours per day and 5 days per week. This may offer a better indicator in comparison to DJI future alone.
For stock selection, I would prefer a top down approach. You may also include U.S. Dollar Index as part of your analysis.
The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.
It is a weighted geometric mean of the dollar's value compared only with
Euro (EUR), 57.6% weight
Japanese yen (JPY), 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight and
Swiss franc (CHF) 3.6% weight.
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