β#ForexChief #DXY #trading #forexschool #forexeducation #DollarIndex #MorganStanley #DollarSmileβ
π± DXY: What Does βDollar Smileβ Mean?β
π In addition to trading directly with DXY assets, the dynamics of the index are used as an additional macroeconomic indicator to understand the global picture.
β
You already know that the USD rate reacts nervously to both very bad and βtooβ positive market conditions: in these situations, it strengthens in all trading assets. To interpret this phenomenon, Morgan Stanley analysts came up with the "smile" theory, assuming three scenarios:
βͺοΈ Bearish: There is an active risk aversion - investors are looking for a βsafe havenβ for capital denominated in USD and/or JPY. The result is that the USD index is declining, even if the US economy is not showing real success.
βͺοΈ "Neutral": USD has already updated its lows, but is not yet ready to grow - the US economy is weak, inflation and labor market indicators are deteriorating, interest rates are falling. The result is that the market has stabilized at the bottom, "the smile is getting wider."
βͺοΈ Bullish: With US economic growth, investors are optimistic, GDP is growing, key rates are increasing. As a result, the market "respects" USD again, the index is growing.
β
You must clearly understand what phase the current market is in: if you are ready for long-term diagnostics, you can check this scheme yourself. Use this information wisely and efficiently.
β
Profits to y'all!