More than the euro

It would be easy for skeptics to say the DXY is little more than the euro in disguise. Given the euro’s 57.6 percent weight in the DXY, that sentiment is understandable.

But sentiment is not fact. If we index the euro and the DXY since the former’s introduction in January 1999, we find long periods of divergent performance between the euro and the DXY. The spread between these performance indices as a percentage of the DXY has risen and fallen as a function of the euro’s strength. This means the two markets are quite different in what drives them higher or lower. A singular focus on the euro will result in a USD-focused trader missing large moves in, say, the Canadian dollar or Japanese yen.

Too many traders confuse being fancy with being effective.

If you want a simple-to-trade, liquid expression of your dollar opinion, one linked heavily to other markets in surprising ways, forget the fancy stuff. Where has it gotten all of the trading professionals who would rather face exile than do something understandable by the common man? It does not take rocket scientist to trade DXY futures and options effectively — or to trade the ProFunds or Rydex DXY oriented funds effectively — nor should it.

This is a business that pays you for being right, not for elaborate explanations of why various external factors throw you off-guard. Don’t make it any harder than that.