Tag: USDX

Categories
Forex Course

197. Using The USDX Numbers To Trade The Forex Market

Introduction

Introduction

Introduction

The U.S. Dollar Index is one of the most reckoned currency indexes and trades on exchanges with the DXY ticker or the USDX ticker. This index has been around in the market since 1973, when the base value was kept at 100,000.00, which is now 100.00.

It is a very prominent factor that facilitates Greenback. And the basket used to measure the U.S. dollar index value has only been changed once post-Euro replaced many other European currencies in 1999.

Formula To Calculate USDX

USDX = 50.14348112 * the EUR/USD exchange rate ^ (-0.576) * the USD/JPY exchange rate ^ (0.136) * the GBP/USD exchange rate ^ (-0.119) X the USD/CAD exchange rate ^ (0.091) × the USD/SEK exchange rate ^ (0.042) * the USD/CHF exchange rate ^ (0.036).

Implementing The US Dollar Index to Trade Forex

The movement determined in the U.S. currency index, such as the USDX, offers traders a sense of how the currency is experiencing a change in its value against other currencies in the index. For instance, if there is a rise in the USDX level, this indicates the rise in the U.S. dollar. Similarly, when the level of USDX is falling, so is the dollar in the foreign exchange market.

Many financial reporters leverage the changes witnessed in the U.S. Dollar Index’s value to offer their viewers and audiences an idea of how the U.S. dollar performed in the foreign exchange market. This works as an alternative to analyzing how each currency increased or decreased against the dollar.

Moreover, the USDX can also act as an inverse indicator that reflects the strength of the consolidated Euro currency of the European Union, considering that the weight of Euro (57.6%) is the most in the index.

Another prominent aspect that the forex trader should consider is how the movements of the USDX is associated with the other currencies that are put against the U.S. Dollar.

For instance, when the currency pair is measured as USD/JPY, it is likely to be positively correlated, and both the currencies should rise and fall at the same time.

Contrarily, when the currency pair is measured like EUR/USD, then the currency pair and USDX are inversely correlated. This implies that they are likely to move in the opposite direction, where one will fall when the other rises.

[wp_quiz id=”97457″]
Categories
Forex Course

195. Understanding The U.S. Dollar Index Numbers

Introduction

Introduction

Introduction

The U.S. Dollar Index is a measure of the value of the Dollar in respect to foreign currencies as measured by the respective exchange rates. More than half of the index value of the Dollar is measured against the Euro. The British Pound, the Japanese Yen, the Swedish Krona, the Canadian Dollar, and the Swiss Franc. It is a market on its own as well as an indicator of the U.S. dollar strength on a global level. Moreover, it can also be used as the technical analysis to determine trends of various markets.

How Is The US Dollar Index calculated?

Below is the formula to calculate USDX–

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^(0.036)

Each currency value is multiplied by its weights. When the U.S. dollar is the base currency, this comes at a positive figure. On the other hand, when the U.S. dollar is used as the quoted currency; then this would come as a negative value. Additionally, pounds and euros are only countries where the U.S. dollar is used as the base currency as they are quoted in respect of the Dollar.

How To Interpret the U.S. Dollar Index?

Similar to any currency pair, there is a dedicated chart of the U.S. Dollar Index (USDX). Additionally, the index is calculated five days a week and 24 hours a day. The U.S. Dollar Index measures the value relative to a 100.000 base.

If the index value stands at 120, this means that the U.S. dollar has witnessed 20% appreciations against other currencies in the basket. This simply implies that the U.S. dollar has strengthened in comparison to other currencies. On the other hand, if the index value shows at 70, this implies a depreciation of 30%

Final Thoughts

The U.S. Dollar Index enables traders to monitor the value of the U.S. dollar in comparison to six currencies within the bracket in a single transaction. Moreover, it also assists them to hedge the bets against risks associated with the Dollar. Investors can use this index to hedge the normal movement of currency or speculate.

[wp_quiz id=”97442″]
Categories
Forex Course

194. Introduction To The US Dollar Index (USDX)

Introduction

Introduction

Introduction

The U.S. dollar index is referred to as a measure of the value of the U.S. dollar, which is relative to the value of a series of currencies that are the most important trading partners of the country. The USDX is similar to other forms of trade-weighted indexes that also use the exchange rates from the leading currencies.

U.S. Dollar Index – A Brief History

In the year 1970, the U.S. Dollar Index switched between 80 and 110. This was the time when the U.S. economy was witnessing recession and rising inflation levels. With the Federal Reserve increasing interest rates to cut inflation, money flowed into the U.S. dollar, resulting in a rise in the USD index. In February 1985, the USD Index hit 164.720; this is the highest it has ever been.

However, this caused significant issues for the U.S. exporters whose goods were no longer competitive internationally. Subsequently, strong actions were taken by the U.S. government to make the currency more competitive, with five nations agreeing to manipulate the U.S. dollar in the forex markets.

This made the Dollar Index dropped by 51% over the course of four years. Since that time, the index has tracked the performance of the economy as well as liquidity flows.

Fundamentals of U.S. Dollar Index

This index is presently calculated by factoring in the exchange rates of six leading world currencies, including Euro (EUR), British Pounds (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), Swedish Krona (SEK), and Japanese Yen (JPY). The biggest component of this index is the EUR, which accounts for approximately 58% of the basket. The weights of the rest of the currencies in the index include –

  • GBP (11.9%)
  • JPY (13.6%)
  • SEK (4.2%)
  • CAD (9.1%)
  • CHF (3.6%)

What Impact The Price Of The USD Index?

The USD Index is primarily impacted by the demand for and the supply of the U.S. Dollar. Related currencies of the baskets are also an important factor. These factors impact the price of each pair of currency in the formula that is being used to calculate the value of the U.S. Dollar’s value. The demand and supply of currencies are determined by monetary policies.

In the upcoming course lessons, we will be learning more about the US Dollar index. So, stay tuned. Please take the quiz below before you go. Cheers.

[wp_quiz id=”97429″]
Categories
Forex Market Analysis

Is The USD Poised To Drop Further?

The US Dollar remains under selling pressure versus the other major currencies, even if the Federal Reserve has decided to increase the Federal Funds Rate again in March. The greenback posted some gains against its rivals in the last weeks, but I’m afraid that the rebound has ended because the USDX is showing some exhaustion signs in the short term.

The Dollar could drop again as the dollar index has failed to stay higher and to make new highs. USDX is trading at 89.77 level and looks undecided on the short term. It is moving sideways, but the bearish bias remains intact as the rate is located much below some very strong resistance level.

USD increased significantly only versus the Yen and versus the Swiss Franc in the last days and remains to see if the pairs will have enough energy to make new highs. The USD needs a strong support from the United States economic data in the upcoming period to be able to dominate the currency market again. This scenario is less likely to happen.

us dollar drop

I’ve added the USDX’s Daily chart to show you why the USD could drop again and what are the other perspectives. The index has found strong support at the 50% Fibonacci line (descending dotted line). It has made several false breakdowns below this dynamic support. The minor rebound was natural and expected.

The dollar index moves in a range in the short term. It remains to see if this will be an accumulation or a distribution movement. Price failed to reach and retest the 91.01 static resistance and the first downtrend line (DT1) signaling a selling pressure. It seems like that the USDX is developing a Falling Wedge pattern on the Daily chart, but I’m not very confident that the price could make a valid breakout at this moment.

The failure to approach and reach the median line (ML) of the major descending pitchfork could send the rate towards the 50% Fibonacci line again. A further US Dollar drop will force the greenback to lose more ground versus all its rivals.

us dollar forecast

I’ve added another chart to show you what happened in the last weeks. Technically, the USDX is somehow expected to drop after the failure to stabilize above the 50% Fibonacci line (ascending dotted line). You can notice that the rate has failed to reach this line in the last attempt and now is expected to reach the lower median line (lml) again.

A valid breakdown below the lower median line (lml) will confirm a further drop and a USD’s further depreciation. Only a rejection from the lower median line (lml) or a false breakdown will announce another upside momentum.

Conclusion

The USD’s future will be decided by the dollar index in the upcoming period. USDX is narrowing, so we should wait for a breakout from this range to see the direction. The USD wasn’t too impressed with the US Retail Sales data today. The indicator increased by 0.6%, beating the 0.4%, but the dollar stays lower as the USDX plunged in the last hours.