Digging deeper into trading by learning the US Dollar Index (USDX)
The basket currency
The US Dollar Index comprises six foreign currencies: the Euro, Japanese Yen, British Pound, Canadian dollar, Swedish Krona, and the Swiss Franc. Although they are only six currencies here, there are 24 countries included since the Euro holds 19 European Union member states out of the 27. So, that makes it 24 if we add the other five countries of the currencies we mentioned.
ICE and the USDX
The USDX measures how strong the USD is in global terms. There are various things that one can do with the USDX, and these include:
- DX – futures contract trade on the ICE (Intercontinental Exchange)
- Availability – ETFs (Exchange-traded funds), CFDs (Contracts for difference), and options
ICE, also known as the intercontinental exchange group, is a company that focuses on the global exchange, financial data, clearing, and technology. They operate different markets and offer services in nine various asset classes. ICE is the exclusive property owner of the USDX or US Dollar index trade and service marks. ICE is the world’s biggest exchange group.
USDX, DX, and DXY
- USDX is the US Dollar’s umbrella term.
- DX is ICE’s exchange symbol for a futures contract, and it is succeeded by a month and a year code. DX is also ICE’s exchange symbol for the underlying dollar index’s value, also known as the cash or spot index. The only difference is it does not use a month or a year code. However, some providers may use another symbol.
- DXY is Bloomberg terminal users’ famous symbol. They sometimes call it Dixie. DXY and DX can both refer to cash or spot index. However, people mostly use DXY when they talk about dollar cash or spot rate and DX when it’s about futures.
The USDX components
Since countries vary in size, they should not have the same weight in the USDX calculation. Let us learn about USDX geometric weighted average. The most part goes to the Euro since it carries 19 countries. Next is the Japanese Yen since Japan also has a massive economy. The remaining four countries make up more or less 30 percent.
Now that we mentioned that the Euro makes up a significant portion of the USDX, people refer to it as the anti-Euro index. This reason makes other traders search for a more balanced dollar index. Here are the two other USDXs:
- Trade Weighted Dollar Index
- Bloomberg Dollar Spot Index
So, is it now rebalanced?
The only time that the ICE USDX got rebalanced was when they introduced the Euro as the European Union bloc of countries’ common currency. It does not get a regular schedule. The ICE futures US is the one that keeps an eye on the index methodology so that it reflects covered currencies correctly. If there is a need for rebalancing, the FX market will be the one to do it.
US Dollar index calculation
The real-time calculation is every 15 seconds and is redistributed to every data vendor. The market sets the DX Futures contracts prices. These are the ones that reflect the interest rate differentials between the USD and the other currencies.
One can get the real-time prices for the ICE USDX from the market data vendors or the WebICE. ICE is the one that has a say over the price data, and they do not charge for the data feed. However, real-time feed is not for free. If you want to know about the delayed prices for the cash USDX, you can check them on certain websites like Bloomberg, CNBC, Yahoo, and the like. If you want to know about the delayed ICE USDX index futures prices, you can check the ICE website.
What do you think about today’s lesson?
Trading currency sure is a lot of work, right? As you go deeper and deeper, you figure out that it is not as simple as buying and selling. It takes a lot to be a successful trader.