US Dollar Index (USDX)
The USDX, or U.S Dollar Index, measures the value of the U.S dollar against a select basket of major foreign currencies. The value of the index is calculated by taking into account the euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Canadian dollar (CAD), the Swedish krona (SEK) and the Swiss franc (CHF).
How to use the USDX in forex
The USDX is a particularly important index in online forex trading because it provides traders with insights regarding the performance of the U.S dollar on the global stage. It can also be utilized to confirm entry signals in all the major forex currency pairs as well as commodities such as gold and oil.
The most actively traded forex pairs are the ones that include the U.S dollar. Therefore, knowing how the U.S dollar is faring compared to the other major currencies is vital information regardless of your trading strategy.
While the USDX is such an important index that can help with market analysis in forex trading, it’s also a highly popular investment vehicle that can be traded as any other financial asset on the global markets.
What affects the price of the USDX?
The value of the index can be influenced by the forces of supply and demand that affect both the U.S dollar and the other currencies factored in the index. Central banks and their monetary policy e.g. interest rate decisions can play a key part in the performance of the underlying currencies for example.
However, factors such as inflation, investor sentiment and other geopolitical developments may also trigger fluctuations in the price of the index.
Did you know…?
The euro (EUR) enjoys the lion’s share of the weight in this index, simply because it is a currency shared between 19 countries. As such, the USDX is considered to have an inverse relationship with the EUR/USD pair. (i.e. when the USDX goes up the EUR/USD goes down and vice versa).