"I recently read on a financial site that the U.S. Dollar Index hasn't been adjusted in 12 years, and the weightings in the index are rather strange. The numbers may fluctuate a little, but the following breakdown is roughly on point:

"Euro 58.6%, Japanese yen 12.6%, Pound sterling 11.9%, Canadian dollar 9.1%, Swedish krona 4.2%, Swiss franc 3.6%

Immediate questions spring to mind with that mix; Where is the Australian dollar? Or the Chinese yuan? And the Swedish krona still having a stronger weighting than the Swiss franc?

"I would appreciate your feedback as to whether these weighting are really credible!"

Eoin Treacy's view Thank you for this email which is sure to be of interest to other subscribers. According to the Bank of International Settlements the US Dollar, Euro, Japanese Yen, British Pound, Australian Dollar, Swiss Franc, Canadian Dollar, Hong Kong Dollar and Swedish Krona account for the lion's share of foreign exchange transactions in that order.

The Chinese Renminbi is not a freely traded currency so it might not be appropriate to bundle it with other major currencies. Neither the Australian Dollar nor the New Zealand Dollar is represented in either the Dollar Index or the Asian Dollar Index. I do not know why this is but agree it is a serious omission. I agree the Swiss Franc probably deserves a higher weighting than the Swedish Krona but since they both account for comparatively small portions of the Index, it would probably not make a great deal of difference to the performance.

If we think about what we use the Dollar Index for, namely a measure of how the Dollar is performing against Europe and Japan, then it is still fit for purpose. At Fullermoney, we almost always look at the Asian Dollar Index in conjunction with the Dollar Index because how the Dollar performs relative to Asian currencies is likely to become an increasingly important consideration for investors over future decades.

The Dollar Index fell from 120 to 70 between 2002 and 2008. The downtrend has since lost momentum but it is as yet unclear as to whether it is has ended. The Index broke its progression of incrementally higher reaction lows in March and has since stabilized around the 75 area. It has unwound the overextension relative to the 200-day MA but a sustained move above 76 is required to break the more than yearlong progression of lower rally highs and suggest a return to medium-term Dollar demand dominance.

The Asian Dollar Index crashed lower in 1997. It retested the nadir in 2001 and subsequently trended consistently higher until early 2008. The Index surmounted the 2008 peak by late 2010 and remains in a consistent medium-term uptrend; defined by a progression of higher reaction lows. These would need to be broken, with a sustained move below 117 to question potential for further upside.