I’ve found something super interesting on twitter yesterday. As I was reading news about dollar index going below 100 once again enabling a big rally in global equities, commodities like crude, gold and even, crypto has joined the party now.
Credits to Ankit madhwani on twitter, He shared something that most of the investors and traders tend to over-estimate or exaggerate when it comes to dollar index.
How long has Dollar index sustain above 100 in last 40 years?
If we look at last 40 year data, Dollar index has traded above 100 mark only for 14% of the time and has been below that for 86% of the time.
This comes as a surprising fact to me as dollar index is the global reserve currency but nearly 85% of the time, it is below 100 and there were only 3 major periods where it stayed above 100 and the longest period it stayed above 100 was 38 months between 1999-2002 when euro was introduced, there was 9/11 attack and this cycle is the shortest with only 16 months.
01-01-1985 to 01-01-1987
05-01-1987 to 07-01-1987
11-01-1999 to 12-01-2002
11-01-2016 to 12-01-2016
04-01-2022 to 13-07-2023
Co-relation between Dollar index and other asset classes
Dollar falling means more inflows to equities and also increase in relative value of commodities and precious metals like Gold.
This is one of the key indicators to track but it only needs to be seen in context with what other indicators are doing as well.
After Nixon took us gold standard, him and his buddy Kissinger went to middle East to make deal with Saudis to sell oil ok dollars in exchange for military cooperation and protection.
Somewhere yom Kippur war happened and Saudis put oil embargo and that sure did have a impact on dollar.
I remember this news well though. In this entire f**k up of middle East over oil , military industrial complex . Saddam Hussein was selling oil in Euros rather than dollars. Back at that time I believe euro was trading higher than dollar or something. It was having an impact. Which is why US invaded Iraq. I am pretty sure if we map the middle East events or events that involved oil, the dollar index would make sense.