What is USD Index?
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Thread: What is USD Index?

  1. #1
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    What is USD Index?

    USD Index

    The US dollar index Dollar index is a calculation that gives the weighted average of a basket of foreign currencies against the dollar.


    It is very similar to the way stock indices work because it provides a general indication of the value of a basket of securities. Of course, "stock" but here we are talking about other major currencies in the world.


    The currency basket, which is included in the index of USD.


    The American dollar index consists of six foreign currencies. They are: Euro (EUR
    (Yen (JPY)
    Cable (GBP
    (Loonie) CAD
    (Kronas) SEK
    (Francs) CHF


    If the index consists of 6 currencies, how many countries are included in that indicator?


    If the answer is "6" the answer is wrong and if the answer is 20 then you are brilliant.
    There are a total of 20 countries because there are 15 EU Member States that have adopted the euro plus the other five countries (Japan, Britain, Canada, Sweden, and Switzerland) with currency holders.


    It is clear that 20 countries make up a small part of the world, but many other currencies are closely following the US dollar index. This makes USDX a good tool for measuring the U.S. dollar as a global power.

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    The USD index is based on the strength and the weakness of the dollar, it is always working in opposition to the major pair, when I understood this instrument, I took advantage of it to trade both eur USD and the GBP USD, although I got false trading signal sometimes which is normal, I was able to know when a pair would be bearish or bullish because of the USD index.

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  3. #3
    Trader layigold's Avatar
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    You have carefully explained dollar index but how that can help retail traders improve on his trading is what I think , really matters. Before I trade currency pairs like EURUSD, GBPUSD and some other dollars related pairs , I do consider the dollar index first at least to confirm my bias on those pairs. If I see dollar index coming down , I will be looking for EURUSD to go bullish and any setup in that direction promises to be a high probability trade most often .

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    Trader Silhouette's Avatar
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    Quote Originally Posted by layigold View Post
    You have carefully explained dollar index but how that can help retail traders improve on his trading is what I think , really matters. Before I trade currency pairs like EURUSD, GBPUSD and some other dollars related pairs , I do consider the dollar index first at least to confirm my bias on those pairs. If I see dollar index coming down , I will be looking for EURUSD to go bullish and any setup in that direction promises to be a high probability trade most often .
    Then I suppose this is what fundamental analysis coming from. I don't pay attention that much with US index because I always see the chart patterns and use my technical strategy to find the trading opportunity. Many times I tried reading the movement from US index to compare its movement to major forex pairs but I was wrong or not really good about it, then I got several wrong trades which thankfully closed by stop loss.

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  5. #5
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    We should pay attention to the USD index especially if we trade the major pairs because most of the time, it is a the pair that determines what takes place in all major pairs speaking about EUR USD, GBP USD, AUD USD, USD JPY, USD CAD, nzd USD and the likes, understanding how the dollar index works can change the way we trade any of the above pairs and increase our level of productivity with them.

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  6. #6
    Trader layigold's Avatar
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    Before I place any trade on currency pairs like EURUSD and gold , I always refer to USD index chart because of negative correlation that exists between them . If USD index is at a good resistance level and EURUSD is at a good support level , My confidence level is always very high in going long on EURUSD . As long as dollar index keeps in coming down , EURUSD will be going up so also the gold . It is one thing to know what dollar index is , it is another thing to know how you can watch its chart to confirm your analysis on any other chart that shares some correlation with USD index

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  7. #7
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    The USD index is the strength or the weakness of other major currency pairs because they are traded against the dollar, imagine a pair like EUR USD, it will always be bearish as long as there is some strength in the USD index which will be reflected in a bullish dollar, but when the opposite happens, then we will observe how the eu is going up while the dollar is coming down.

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    The dollar index is the accurate measurement that can inform the forex trader about whether he should be buying or selling the major pairs, there is a strategy that you can make out of knowledge of the dollar index, the trader who is not well informed about this would be losing where the professional traders are earning from a pair, what can cause this demarcation is the usage of dollars index to know if they can buy or sell another pair, incorporating this feature into your strategy will make lots of difference. Don't take my word for it, practice before you trade it.

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  9. #9
    Trader layigold's Avatar
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    I use dollar index to measure the strength of the US dollars and that has really been of help to me in grading currency pairs like EUR/USD, GBP/USD and gold all other things being equal. If dollar index chart finds a good support and start moving northward, I will not hesitate to follow any sell opportunity sighted on any of the financial instruments mentioned above because the strength of US dollars will cause the pairs to come down.

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  10. #10
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    US Index indeed are good to measure such kind of things and i have seen you improved to another level then in trading. It is sad that most traders are not even using them in order to make decision to trade. It is most likely they do not even understand the relationship of US index and how that will determine the path of the market. Try to stick with that and improve even better and you will make a lot of great trades.

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