The US dollar has relentlessly blasted higher in recent months, achieving its longest consecutive-week rally in history. Speculators have flooded into the world's reserve currency for a variety of reasons, ranging from Federal Reserve rate-hike hopes to festering Eurozone worries. But the resulting massive dollar surge has left it super-overbought while breeding universal bullishness, the precursors to a sharp selloff.
While only a small fraction of traders speculate in currencies, the foreign-exchange market is the largest in the world by far. Trillions of dollars change hands in currency trades every day, dwarfing all the other markets! And currency prices, particularly the fortunes of the dominant US dollar, can greatly affect everything else in the financial-market and economic realms. No one can afford to ignore the US dollar.
When the dollar is strong, the rest of the world's currencies as well as popular commodities including oil and gold are forced lower. Higher dollar prices also retard US exports, making goods produced here more expensive for foreign customers. This cuts into corporate profits, which in turn adversely impacts stock prices. But a strong dollar also reduces import costs, giving Americans more purchasing power.
And of course the opposite is true when the US dollar weakens. Other currencies and commodities rise, US exports grow, and importing gets more expensive for consumers and corporations alike. The dollar's impact is truly universal, so investors and speculators must pay attention to it. Particularly in times like today witnessing extraordinary moves, where the dollar's influence on global markets waxes large.
The most popular way to track the US dollar's price levels is through the venerable US Dollar Index. The USDX was born an impressive 41 years ago in March 1973, and measures the dollar against a basket of 6 leading world currencies. This flagship index is dominated
