How do I use this USDX in my trading arsenal?
We all know that most of the widely traded currency pairs include the US dollar. If you dont know, some that include the U.S. dollar are EUR/USD, GBP/USD, USD/CHF, USD/JPY, and USD/CAD.
USDX will give you an idea of the relative strength of the US dollar around the world. In fact, when the market outlook for the U.S. dollar is unclear, more often times than not, the USDX provides a better picture.
Because the USDX is comprised of more than 50% by the euro zone, EUR/USD is quite inversely related.
If the USDX makes significant movements, you can almost surely expect currency traders to react to the movement accordingly. Both the USDX and forex traders react to each other. Breakouts in spot USD pairs will almost certainly move the USDX in similar breakout fashion.
To sum it all up, forex traders use the USDX as a key indicator for the direction of the USD.
Always keep in mind the position of the USD in the pair you are trading. For example, if the USDX is strengthening and rising, and you are trading EUR/USD, a strong USD will show a downtrend on the EUR/USD chart. If you are trading a pair in which the USD is the based currency, such as the USD/CHF, a rise in the USDX will most likely show a rise in USD/CHF charts like the one shown below.
Trader Alen
Thursday, March 31, 2016
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