It used to be said that currency issues are good trending areas for traders and investors. Over the past few months this has hardly been the case as conditions become choppy and trends dissipated.
The Dollar Index is roughly 60% weighted by the euro currency. The next highest weighted is the yen, approximately 13% and the pound at 12%. What happens with the euro/dollar relationship dominates whatever trend exists with the Dollar Index. Since the summer of 2011 conditions in the eurozone became uncertain and volatile occasioned by high debt crises mostly from southern European EU member countries like Greece, Italy and Spain, for example. The euro in relationship to the dollar began trending lower overall. Over the past few months the relationship has been an erratic "day to day" affair.
In the most recent environment traders, and especially trend followers, have seen their long or short positions being chopped-up in a trading range. Without negative news from Europe, especially as it regards featured countries, the euro may rally somewhat. However, any negative news drives the euro lower against the dollar - wash, rinse, repeat.
All this has made for poor trading results and performance for those trend-followers in either the dollar (UUP) or the euro (FXE). Naturally this has led to even poorer results for investors using leveraged issues like the ProShares 2x bull & bear euro ETFs (ULE) and (EUO).
It may also seem odd to some investors that a weak dollar is bullish for stocks generally. This is due to expectations that U.S. based companies will be able to export more goods overseas as the dollar weakens and becomes more competitive. But this decline in the dollar is not without negative consequences since it makes imported goods cost more. While past and current U.S. administrations have argued for a "strong dollar policy" the facts argue the opposite being true. Obviously printing more dollars makes them worth less and that has been the message from higher gold prices. Since most global central banks are now printing money, it may render all fiat currencies worth less.