What is the USD Index? Why should you pay attention to USDX when trading?

What is the USD Index? Why should you pay attention to USDX when trading?

When participating in major financial markets through investing with Forex and Fixed Time Trade, you need to track a series of important indexes to make the right decisions. USD is the currency that has a very strong influence on international trade. In this article, I will show you the most important one, the USD Index.

What is the USD Index?

The USD Index (USDX) is a measure of the value of US dollars against 6 currencies of major US trading partners and countries. Therefore, the member countries in this index also affect the ups and downs of USDX.

What is the USD Index?
What is the USD Index?

Among the above 6 foreign currencies, the USD Index is heavily influenced by the Euro (about 57.6%). The remaining 5 currencies are as follows:

  • British Pound GBP (11.90%)
  • Japanese Yen JPY (13.60%)
  • Swedish Krona SEK (4.20%)
  • Canadian Dollar CAD (9.10%)
  • Swiss franc CHF (3.60%).

This also shows that USDX is an indicator that reflects the “health” of the USD. Therefore, when this indicator rises, the dollar also strengthens. On the contrary, if it falls, it means that the USD is weakening.

Importance of USD Index

The USD Index helps you to see the value of the US dollar (USD) against the value of a basket of currencies in a single transaction. This indicator also helps traders make judgments about the future trend of USD up or down.

Besides, analysts and traders often use USDX to determine the trend of commodity markets concerning USD. For example, gold, silver, and crude oil…

In addition, USDX is also used in futures contracts, options contracts (DOCs). It is also an important part of mutual funds, exchange-traded funds (TEFs) ).

Importance of USD Index
Importance of USD Index

Why should investors pay attention to the USDX in trading?

In trading, currencies always trade in pairs. However, there is still one index that is not in pairs but extremely important, which is the USD Index. The bullet points below will explain to you why the USDX occupies such an important position in trading:

Why should investors pay attention to USDX?
Why should investors pay attention to USDX?

Due to the strong development of the US economy, the USD has become a popular trading currency around the world. Therefore, fluctuations from the USD will have a great impact on the foreign exchange market along with currencies or commodities such as gold, silver, crude oil, etc.

– USD Index reflects the health of the US dollar. Therefore, when the USDX increases, the USD is healthy. So investors can choose a strategy to buy USD that is reasonable compared to other currencies. On the contrary, if the USDX falls, investors should limit buying USD or use the strategy of shorting USD or switch to other safer methods.

– USDX is made up of a basket of 6 currencies. You can use USD Index as a prediction base for many other currencies containing USD. Among them is the EUR/USD pair which moves in the opposite direction to the USDX. Therefore, you can rely on the trend of USD to make profitable trades.

How to use USD Index in trading

To better understand how to use USDX, let’s note the analysis of major currency pairs. They are heavily influenced by the US dollar such as EUR/USD, USD/JPY, USD/CHF, USD/CAD, GBP/USD…

Besides, the US dollar directly affects the currency rate. So if the USD Index goes up, EUR/USD will fall and USD/CHF will increase.

If the market is volatile, using the USDX will provide traders with accurate information about the strength and weakness of the US dollar and how it affects other currencies in the market. Moreover, as the introduction at the beginning of the article, the currency EUR accounts for the largest proportion. Therefore, the EUR/USD currency pair is also affected and tends to move in the opposite direction compared to the USD Index chart.

To understand better, we will analyze 2 cases of how to use the USDX in Forex and Fixed Time Trade as follows.

Case 1: EUR/USD with USD as the quote currency

Chart 1 – Basic Dollar Index

Basic Dollar Index price chart in Olymp Trade
Basic Dollar Index price chart in Olymp Trade

Chart 2 – EUR/USD currency pair

EUR/USD price chart in Olymp Trade
EUR/USD price chart in Olymp Trade

Looking at the two charts above, we can see that the USD Index and EUR/USD have a clear opposite.

If the Basic Dollar Index decreases, the EUR/USD currency pair is likely to increase.
When the Basic Dollar Index increases, EUR/USD decreases.

You just need to trade according to the above rule. The winning rate of the order will be very high.

Case 2: USD/CHF with USD as the base currency

Based on the following chart, we can see that USD/CHF and USD Index move in the same direction.

USD/CHF price chart in Olymp Trade

If you analyze that the USDX will increase in the future, you should open an UP order with USD/CHF. On the contrary, USDX is more likely to fall, so a DOWN order should be placed with the USD/CHF currency pair.

In short

Through the above article, hopefully, you can know how to use the USD Index when trading in Olymp Trade to make a profit for yourself. And don’t forget to learn more knowledge to trade better and better every day. Good luck and happy trading.

Join the Olymp Trade Club Signal Group: https://t.me/olymptradeclub19

What is the USD Index? Why should you pay attention to USDX when trading?
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