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The Dollar Index Breaks Down


  • A move outside the recent trading range.
  • The reasons for the decline of the dollar index.
  • The US administration is fine with a lower dollar.
  • Fiat currencies are all losing purchasing power.
  • Back to the pivot point with UUP.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

On May 23, in a piece on Seeking Alpha, I wrote that the dollar index was “sleepy.” The index, dominated by an almost 58% exposure to the euro currency, had traded in a range from 98.815 to 101.03 from March 31 through May 26. I suggested that government intervention to provide stability to the foreign exchange market during the spread of the global pandemic was keeping the dollar index in a tight trading range.

From March 9 through March 23, the June dollar index futures contract exploded from 94.53 to its highest level since 2002 at 103.96, a 10% move in only two weeks. Currency markets rarely experience such extreme price volatility. Moreover, since the US dollar is the world’s leading reserve currency, stability in the greenback is in the best interest of all countries worldwide. After the period of the highest price variance in years, the dollar index settled into a narrow trading range, which was likely a coordinated strategy during the height of the pandemic. Last week, the index fell below the bottom of the trading range that had established the 100 level as a pivot point.

The Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP) and its bearish counterpart (UDN) follow the index’s price higher and lower over time. The products are suitable for those wishing to take currency exposure without venturing into the futures or over-the-counter foreign exchange markets.

A move outside the recent trading range

After almost two months of trading in a narrow price band, the dollar index broke down last week.

Source: CQG

The daily chart of the June futures shows the decline to a low of 97.800 on June 1. Price momentum and relative strength indicators fell into oversold conditions as the index fell through the bottom end of its trading range. Daily historical

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This article was written by

Andrew Hecht profile picture
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (1)

02 Jun. 2020
Another great article, is this the time to buy 'inflation linked bonds' as a hedge against inflation over the next 5 years?
Andrew what are your thoughts on that?

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