U.S. Dollar Index (USDX) was introduced in March 1973, when the Bretton Woods system ceased to exist. The index shows the ratio of U.S. dollar against a basket of six major world currencies - the euro is (EUR), Yen (JPY), British Pound (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss Franc (CHF). As part of the basket each currency has its own weight:
EUR - 57,6%
JPY - 13,6%
GBP - 11,9%
CAD - 9,1%
SEK - 4,2%
CHF - 3,6%
The composition of the basket of 1973 changed only once - in 1999, when the euro was introduced. At the time of occurrence of the index had a value of 100 points. Historic lows it reached in March 2008 - 70.7 points, while the maximum was recorded in February 1985 - 148.1 points. The index traded at the time of the global currency markets - 24 hours a day, 5 days a week. Trading is to exchange ICE (Intercontinental Exchange) - The former New York Mercantile Exchange (NYBOT - New York Board of Trade). The index is presented in the form of various traded instruments: the stock market investment funds (exchange traded funds, or ETF), mutual funds (mutual funds), stock options.
The index is calculated as a weighted geometric mean of the above rates as follows:
USDXt = 50,14348112 x (EURt) -0,576 x (JPYt) 0,136 x (GBPt) -0,119 x (CADt) 0,091 x (SEKt) 0,042 x (CHFt) 0,036
In the formula, the power coefficients corresponding to the weights of currencies in the basket. Calculation of the index coincides with the data used in calculating the Fed trade-weighted dollar index of currencies of countries which form the main foreign trade turnover of U.S.. Most of the international trade in the U.S. accounts for the euro area (57.6%), followed by Japan - 13.6% United Kingdom - 11.9% Canada - 9.1%, Sweden - 4.2% Switzerland - 3.6 %.
How to use the dollar index at forex?
It is important to understand whether you like it or not, that the U.S. dollar dictates trends of major world currencies, so the index is an excellent starting point for determining the strength or weakness of U.S. dollar currency pairs.
As a rule, the change trend of the index leads to changes in the trends of the currency pairs in which the USD and myself present. For example, during an uptrend USDX pairs with direct quote will also increase (eg, USDCHF, USDCAD), and a pair on the back - slow down (it EURUSD, GBPUSD).
Using technical analysis tools, such as candlesticks, support / resistance levels, moving averages, you can get an idea of the power of the U.S. dollar in terms of long-term trend, possible long-and short-term reversals, as well as changes in market sentiment.
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