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Why do we Now have 4 (Four) ‘DOLLAR’ Indices?

August 24, 2012

The Markets are so confused that everyone wants to create their own Dollar Index. Let’s Review!

We now have 4 major indices or benchmarks for evaluating our currency unit (the ‘dollar’). Let’s review these four indices:

1. The most used index as of today is called the ICE Dollar Index (www.theice.com). This index became operational in 2000 and includes six currencies (weighted by data which goes back to 1973). The ICE index includes the Canadian Dollar, Swiss Franc, Euro, Pound, Yen, and Swedish Krona. This index has been updated only once since its inception in 1973. Many traders now desire a more comprehensive index for today’s real-time markets.

2. The new Wall Street Journal index emerged in 2012 and is now quoted daily as a competitor to the Ice Index. The WSJ Dollar Index (www.wsj.com) consists of 7 currencies and is weighted based on global trading volume. This index is update every 3 years and it represents the 7 most traded currencies as of 2012. This index does not include the growing use of China’s currency (the yuan), however,  and also does not adjust for foreign exchange trading changes in real-time.

3. The FXCM Dollar Index (www.dailyfx.com) is another popular index. This index weights each of 4 currencies equally. The 4 currencies are the Austrailian Dollar, Euro, British Pound, and the Japanese Yen. This index is owned by Dow Jones and started in 1999. Traders use this index when trading currencies globally and electronically.

4. The FTSE Curex Dollar G8 Index (www.ftse.com/fx) started in June of 2012 and is owned by the London Stock Exchange. This index includes 8 currencies and is rebalanced weekly. This index claims to capture some 90% of all USA global trading. The 8 currencies are the Canadian Dollar, the Austrailian Dollar, Swiss Franc, Chinese Yuan, Euro, Yen, Pound, and the New Zealand Dollar. This index is viewed by many as the most representative index for the valuation of the US Dollar. FTSE also weights some 192 currencies in real-time in various different markets or baskets.

In addition to these indices or benchmarks for giving our Dollar a ‘value’ their are others. Our Federal Reserve Bank (Fed) also has another index which it follows (no details available). And new indices are emerging as currency trading grows and magnifies globally. As emerging markets become more important to traders, we will likely witness new indices which include these currencies. What does all this mean going forward?

The important issue to internalize is that our ‘dollar’ is now merely a mathematical NUMBER and NAME. Our ‘dollar’ is an ‘imaginary number’ within our consciousness which gets expressed in terms of math. Finance today has evolved into a game of ‘numbers’, ‘names’, and ‘mathematical’ formulae. All this was made possible by our new high speed computer technology. Computers need ‘numbers’ and ‘math’ to optimize their output. Think of trading today as a game of ‘virtual’ finance which utilizes ‘numbers’ and ‘names’ to organize its internal logic. Most of our trading today has little to do with real economic activity (creation of material wealth). A math Casino is a better description of today’s markets.

 

 
 The markets today lend themselves to trading globally and mechanically. I leave for another Forex Conference in Las Vegas in September. The idea today is to develop virtual forex strategies which allow each trader to watch the global financial news as it emerges and then to trade based on events. Trading is now mechanical and similar to a Casino gamble on Las Vegas Boulavard. It’s mostly manipulating virutal ‘numbers’ and ‘names’ within the context of a computer software program (platform). All the ‘dollar’ indexes are a symthom of what is now happening within our global electronic markets.
 
Enjoy and Watch the Markets:    HTTP://KINGDOMECON.WORDPRESS.COM
 
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