USD Index Predictive Model

[nodoodahs]

This one is giving me the equivalent of a blank stare. The indicator is in the 6th decile which is neutral.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

From last Friday's close, another 10th decile reading for the USDX predictor.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Other than gold being priced in dollars on the exchange market, I don't believe there is any relation between the strength of the dollar and the price of gold, or any other commodity.

The USDX measures the "strength" of the USD vs certain other currencies. I liken it to a skydiver analogy. These currencies are all skydivers, and we can hitch a ride on any one of them. If for some reason the USD skydiver is falling more slowly for a few moments, it appears, to those hitching a ride on one of the skydivers, that the USD is "rising" relative to those others. But make no mistake, in absolute terms the dollar is falling. It's just that, for a while, it looks like it'll fall slower than some other currencies.

Commodities are priced on supply, demand, and speculation. Gold is subject to manipulation for political reasons as well as hedge fund manipulation in some versions of the carry trade.

IMO commodities, commodity company stocks and debt, will be good investments for a while. The key will be selecting the right companies and commodities.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[findfreegold]

How would a strengthening USD affect the price of gold, or are they related in any way anymore?
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I make handsome profits collecting free gold plated scrap and selling it for up to $100 per pound and more. Go to: http://www.findfreegold.bigstep.com

[nodoodahs]

Another 10th decile very bullish signal.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

I haven't researched the Profunds, but the Rydex group is targeting the USDX and has four choices if I remember correctly: match USDX, 2x USDX, inverse USDX, and 2x inverse USDX. Using one of those looks like a pure play on the general strength of the dollar vs. major trading partners.

Refresher: USDX is a geometric weighting of the following currencies
EURO YEN POUND CANDLR KRON FRANC
57.6% 13.6% 11.9% 9.1% 4.2% 3.6%

Refresher: my model is trying to predict movements in the USDX for 13 weeks from Friday's close. It uses changes in M3 aggregate, Federal Funds Rate, 10 Year Treasury Yield, and prior USDX changes. It has a linear r-square of 16.9% for data since 1982.

Below is a table of results based on the decile range of the prediction. The percentage given is the odds of the USDX being higher in 13 weeks, based on the prediction.
decile average
1 31.4%
2 35.5%
3 24.8%
4 34.7%
5 51.2%
6 55.4%
7 52.9%
8 62.8%
9 78.5%
10 75.4%

Given the recent natural disasters and the spikes in gold, there's a lot going on that might MUBAR any model.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[sjwohio]

Any downside to using the rydex or profunds rising dollar funds
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SJW

[nodoodahs]

This model continues to be very bullish for the USDX.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Another 10th decile reading, +2.662 over the next quarter.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Thanks for all the updates, Bill! My dollar index indicators are also pointing to an uptrend going forward - but in the short-run (over the next few months) there continues to be some headwinds, as I have stated earlier:

As I stated right after Hurricane Katrina and right after New Orleans was flooded:

The dollar index has been weak over the last few days given the following:

1) A perceived halt in the hiking of the Fed Funds rate. Traders are now only anticipating a further 25 basis point hike by the end of this year as many analysts are now arguing that the destruction by Hurricane Katrina is a case for an easier monetary policy.

2) The bottleneck in the port of New Orleans - meaning less exports of commodities, etc.

3) Federal aid will result in a higher budget deficit going forward.

Moreover, the U.S. Dollar Index - on its latest rally from 80.xx in December 2004 to 90.xx in July 2005 rendered the U.S. Dollar Index very much overbought. Thus, the recent weakness can also be attributed to just a consolidation of an overbought condition. Over the next four months, I expect the U.S. Dollar Index to find good support at the 84 to 85 level. Barring a further economic catastrophe in the US, I expect a resumption of the bull market in the U.S. Dollar sometime in early 2006.

As I emailed to a subscriber, I still stand by this view.

Non-governmental foreign agencies and individuals continue to express an appetite for U.S. Dollars – as indicated by the continuing decline in foreign reserves held in the custody of the Federal Reserve (the latest weekly number that came out Thursday night continue to reinforce this argument). Moreover, I expect the U.S. savings rate to increase going forward – as the housing market slows down and as bankruptcy laws become more stringent and minimum required balances on credit cards are doubled. This will cause the headline trade deficit numbers to decrease. While this will not be good news for Asian exporters (and most of the global economy), this will be very good news for the U.S. Dollar. In the short-term, however, anything goes. My inclination is to enter a position only when the Market Vane’s Bullish Consensus for the U.S. Dollar has reached a more oversold level.

As of last Tuesday, this was at 42% – which is very long-term oversold but definitely towards the high-end of its 3-year range.

As for myself, I will probably not enter a position in the U.S. Dollar in the next few months – unless the Dollar Index sells off to the 84.xx area or unless the Market Vane’s Bullish Consensus declines to a more oversold level. I prefer a very high probability setup before I would dip my toes in the currency markets (which is one of the most competitive markets in the world). i.e. When it comes to the dollar, I prefer a ST oversold situation combined with a LT bullish outlook.

[nodoodahs]

Model predicted value for the USDX on the Dec 9 close is +2.538. This is a 10th decile reading and very bullish for the dollar.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

This model is predicting a rise in the USDX of 2.187 points over the next 13 weeks. This signal is in the 9th decile which is a very strong signal for increase in the USDX. This model uses monetary changes, interest rate changes, and technicals from the USDX to get an r-square of 16.87%.

Over the experience period used for building the model, when the signal has been in the 9th decile, the results have been on average:
average median min max stdev
2.69 2.98 -6.19 12.66 3.46
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Pretty strong up signal for the USDX.
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Henry,

This one still needs work, as it is purely fundamental and monetary and interest-rate based - the r-square here on quarterly changes to the USDX is about 7%, which is statistically significant but not as high as I'd like.

Early on I was using purely technical analysis on the US dollar exchange rates vs individual currencies and had some success. So the next step is to integrate the fundamental and technical approaches and see if the sum is better than either by itself.

It's funny, when I started posting on these five models, I did a separate post for each and just watched the view counts ... this one got the most attention ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Bill,

Could you give us a little detail on how you constructed your USD Index Predictive Model? e.g. What kind of inputs you may be using? I think many of us will be interested here!

Best,

Henry

[nodoodahs]

Now this is in the middle of the 9th decile, indicating bullishness for the dollar.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.