Monday, 11 April 2011

Peso del Pacífico #2

Expanding on my post here, I want to post on what drives the Peso under current global interest rate (and QE) conditions.

First, the global Foreign Exchange market (FX or Forex) turns over $4,000,000,000,000 ($4T) a day of which 84% of all transactions involve a $USD and a pissant 7.6% an AUD.

Make no mistake the $USD drives the FX world.

With that in mind, the world's financial boffins created the US Dollar Index, a tradeable index (CME Futures) that measures the USD against a basket of currencies.

  • Euro (EUR), 57.6% weight
  • Pound sterling (GBP), 11.9% weight
  • Canadian dollar (CAD), 9.1% weight
  • Swedish krona (SEK), 4.2% weight and
  • Swiss franc (CHF) 3.6% weight.
  • Japanese Yen (JPY) 13.6% weight.
The index is often used on the Futures market to hedge against the equity indices, oil and metal speculation (inverse relationship).

How does it measure to the Peso del Pacífico?

A beautiful inverse relationship oui?

So how does the DX (US Dollar Index) look. Nudging some support now and if it breaks down, another 5% down to the next support level.

For a giggle you can look a the nodding Wayne Swan dog on the dashboard or the Spruiking cheerleaders in Fairfax, News Corp etc but serious Peso watchers keep an eye on the driver Mr DX, if he puts his foot to the floor and breaks 74 down the Peso at 1.10 beckons.

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