How to Trade Using the USD Index

by | Mar 3, 2017 | Forex Articles

theory into practice

How to Trade Using the USD Index
How to Trade Using the USD Index & potential trades that are lining up for next week NOW!

How do I use this USDX in my trading arsenal? Detailed notes below the video

We all know that most of the widely traded currency pairs include the U.S. Dollar for example the EUR/USD, GBP/USD, USD/CHF, USD/JPY, and the USD/CAD.

If you trade any of these pairs, the USDX can be the next best thing out there that can take your trading to the next level.

Why?

The USDX will give you an idea of the relative strength of the U.S. In fact, when the market outlook for the U.S. dollar is unclear, more often times than not, the USDX provides a better picture or gives us more information regarding any trade setups where we have the Dollar as the base currency pair.

The US Dollar Index (USDX, DXY) is an index(or measure) of the value of the United States Dollar relative to a basket of foreign currencies, often referred to as a basket of US trade partners’ currencies.

It is a weighted geometric mean of the dollar’s value relative to other select currencies:

  • Euro(EUR), 57.6% weight
  • Japenese Yen(JPY) 13.6% weight
  • Pound sterling (GBP), 11.9% weight
  • Canadian Dollar(CAD), 9.1% weight
  • Swedish krona (SEK), 4.2% weight
  • Swiss franc CHF) 3.6% weight

How to Trade Using the USD Index

USDX goes up when the US dollar gains “strength” (value) when compared to other currencies d goes down when it loses “strength”

I showed you early this week that we were trapped in a triangle on this Index. The triangle broke to the upside and we reached the target area this morning of a 110 pips.

Why is it important?

At this target area we also have a WR1 pivot and MR1 pivot point at 102.37. If we look to the left of the chart we can also see previous support/resistance in the same area. Now……this information is critical for us.

If this roadblock area gives us the resistance we expect next week what do you think will happen to the pairs where the Dollar is included?

They will follow !!!

We can already see by looking at the USD/CAD and USD/JPY that they are highly overbought too and at key resistance levels.

So let’s keep an eye on that Dollar Index to set the pace for next week.

Regards

Pierre

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