The US Dollar Index (USDX), like any other financial pair, has its own chart.
Observe the US Dollar Index below:
To begin, keep in mind that the index is computed 24 hours a day, five days a week.
In addition, the US Dollar Index (USDX) measures the general worth of the dollar in relation to a base of 100.
Okay. The present reading, for example, is 86.212.
This implies that the dollar has fallen 13.79% since the index began. (86.212 – 100.000).
If the reading was 120.650, the dollar’s value had increased 20.65% since the index’s inception. (120.650 – 100.00)
The US Dollar Index began in March 1973. When the world’s major powers convened in Washington, D.C., they all agreed to allow their currencies to float freely against one another.
The beginning of the index is also referred to as the “base period.”
The U.S. Dollar Index Formula
This is only for the adult and intrigued. Here is the USDX calculation formula:
USDX = 50.14348112 EUR/USD (-0.576), USD/JPY (0.136), GBP/USD (-0.119), USD/CAD (0.091), USD/SEK (0.042), USD/CHF (0.042).(0.036)
How to Use the USDX in Forex
“How do I use this USDX in my trading arsenal?” I’m sure you’re thinking.
Hold your trigger finger tight and you’ll shortly find out! We are all aware that the US dollar is present in the majority of commonly traded currency pairs.
Some examples of currency pairs that include the US dollar are EUR/USD, GBP/USD, USD/CHF, USD/JPY, and USD/CAD.
What exactly does this mean? If you trade any of these combinations, the USDX could be the equivalent of sliced bread.
If you don’t, the USDX will still offer you an idea of the US dollar’s relative strength around the world.
In reality, when the market outlook for the US dollar is unclear, the USDX often provides a better picture.
The USDX can be used as an indicator of the strength of the US dollar in the vast realm of forex. Because the eurozone accounts for more than half of the USDX, EUR/USD is inversely linked. Examine it out:
It’s almost like a mirror picture! If one rises, the other will almost certainly fall.
Will you take a peek at that? It appears that the trend lines almost exactly inversely match up. This could be extremely beneficial to those who are heavily invested in EUR/USD investing.
If the USDX experiences significant movement, currency traders will almost certainly react appropriately.
The USDX and forex traders both respond to one another. Breakouts in spot USD pairs will almost definitely move the USDX in the same way.
To summarize, forex traders use the USDX as a critical indicator for the USD’s direction. Always keep the USD’s situation in mind when trading a pair.
If the USDX is strengthening and growing, and you are trading EUR/USD, a powerful USD will appear as a downtrend on the EUR/USD chart.
If you trade a pair in which the USD is the underlying currency, such as the USD/CHF, a rise in the USDX will almost certainly result in an increase in USD/CHF charts like the one below.
Here are two little tips you should always remember:
- If USD is the base currency (USD/XXX), then the USDX and the currency pair should move in the same direction.
- If USD is the quote currency (XXX/USD), then the USDX and the currency pair should move in opposite directions.