The US Dollar Index is an average value of rate fluctuations of six major currencies (EUR, CAD, GBP, JPY, CHF, and SEK) against the U.S. dollar. The US Dollar index was invented in 1973 with initial value 100. In 1999 it was modified in order to keep track of the euro, which had just been introduced. The index is traded 24 hours on the NYBOT.
USD x = 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)
Computer indicator USD index enables traders to visually determine the dynamics of the US Dollar Index in relation to the basket of world major currencies.
From the point of view of practical use of the US Dollar Index in MetaTrader (including trading the EUR/USD major and other assets), the mainstream is defining divergence and convergence between the US Dollar Index and a financial asset.
- In case the US Dollar Index rises and the related financial asset (i.e. gold, crude oil) is rising too, it means that the price curve on the traded asset is about to reverse. Likewise, when the index and the price of an asset are falling, the price reversal of the latter is to take place in the short term.
- If there is a downward price movement on the currency pair chart, while the Euro index line is rising, it suggests divergence between the price and the values of the indicator. This situation means that soon the currency pair price will begin to rise.
- Alternative: if amid rising price there is a downward movement of the US Dollar Index, then downward reversal of the currency pair price is likely to emerge soon.
Note that! Before you start using the US Dollar Index in your trading, you should understand which of the financial assets mirror the U.S. dollar movement, and which ones move in the same direction.