The nominal Broad USD Index began its free float life in January 1973 at 33.96 and ranged from 30.00 to 33.00’s until 1975 when 34.00 was first seen. Then began a new range from 34.00 to 38.00 until February 1981 when 39 was the top traded number. The climb continued as 100.00 was seen January 1997.
From 1973 lows at 33.00, the Broad Index now sits at its lifetime high levels at 125.25 based on March monthly averages. The overall first ever highs at 127.74 and 127.61 were seen in December 2015 and January 2016. Since August 2015, the Broad Index ranged from 119.28 to lifetime highs at 127.74.
The historic mid point is located at 78.87 as the Broad Index climbed steadily and continuously over a 44 year period. The 1 year average is 123.40 and trades mid range from current 125.25 March monthly average. Targets are located at 126.16 and 125.19 is a must break point to head lower.
The Broad USD Index consists of exchange rates of 26 of the major trading partners of the U.S. The largest trade partners and those nations with the most current Total Weights in the index are in order: China (20%), Europe (17%) Mexico (12%), Canada (11%) and Japan at 6.28%. The UK is next a 3%.
China’s share in the index increased 5 3/4 % from 1997 to 2003, Europe increased 2% and Mexico 1 1/2 % while Japan dropped 4%. Shares in the index is a reflection of increases or decreases in trade with the United Stated and is reflected in Weights given to the 26 nations based strictly on trade. If Japan increases trade with the U.S. for example, Japan weights will increase.
Most nation”s central banks update Trade Weight Indices every 5 years to account for inclusion or exclusion in trade partners and update Weights given to trade partner nations. The purpose overall for trade weight indices is to measure a nation’s exchange rate to trade against trade partners.
The 26 trade partner nations in the Broad Index accounts for 90% of total Imports and Exports and no changes occurred to the 26 Major Trade partners inclusion or exclusion since its 1973 inception. Only weights change.
The Major Currency Index, a subset of the Broad Index in monthly averages closed March at 94.49 and down from its January 1973 introduction at 108.18 and also down from 143.00 lifetime highs at 143.00 February and March 1985. The Major Currency Index is the daily traded DXY and reflects 7 currencies: EUR, CAD, JPY, GBP, CHF, AUD and SEK.
The 1 year average is 91.95 and targets 94.18. From current DXY at 100.26, the Major Index is miles upon miles overbought. The historic 106.06 Mid point is located from 69.09 in July 2011 to 143.00 highs.
The OITP Index or Other Trade Partners consist of 19 of the 26 nations exchange rates and is the most volatile in relation to the Broad and Major DXY indices. The number 19 is derived from exclusion of the 7 nation currencies in the DXY Major Index. Not only is the OITP volatile but it far outperformed the Major and Broad indices continuously since its 1973 inception.
The OITP began January 1973 at 2.1287 and now sits at March’s monthly average at 157.74. Lifetime highs were seen at 162.95 and 162.25 December 2015 and January 2016. The historic mid point is located at 82.47. The 1 year range saw 151.57 lows to highs at 162.95. The 1 year average is 156.55 and oversold from 155. The OITP closed yesterday at 156.50 and threatens a break lower. Above 156.50 then threats higher to 160.21 is highly possible due to oversold.
Trump’s announcement for a lower USD and Interest rates must be viewed overall from a DXY Trade Weight perspective. While DXY rose significantly since 1973 against all indices, the current U.S. trade deficit is $300 billion and traded in negative since the last positive Trade Balance was seen in the early 1970’s.
Its no coincidence DXY from the Major Index is as much overbought as Fed Funds in monthly averages from 1 month to 10 years. Suspect in this analysis is not from the Trump side as DXY is far to high and overbought but the Fed’s sudden concern to raise Fed Funds multiple times.
Brian Twomey