Is It Time To Buy US Dollar Index?

You can trade US Dollar Index on your MT4. Before you start trading US Dollar Index, it would be a better idea to know more about it. US Dollar Index is infact a measure of US Dollar against a basket of six currencies. The basket contains EURO (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK) and Swiss Franc (CHF). Surprising this basket of currencies does not include Chinese Yuan despite the fact that China is US biggest trading partner. Maybe in the future Chinese Yuan (CNY) also gets included in this basket.

Most probable reason for not including CNY in the basket was CNY was a managed currency and not a free floating currency. But now CNY is a free floating currency. International Monetary Fund has also made it an international reserve currency. So there is no point in not including in the US Dollar Index as not including it in the basket can skew the strength of US Dollar. The following is the weight of these currencies in the basket:

  1. EUR– 57.6%
  2. JPY– 13.6%
  3. GBP– 11.9%
  4. CAD– 9.1%
  5. SEK– 4.2%
  6. CHF– 3.6%

Now when you are trading any USD pair, it is always a good idea to keep an eye on US Dollar Index. When USD Index rises expect the pairs like EURUSD, GBPUSD, AUDUSD, NZDUSD etc to fall and the pairs like USDJPY, USDCAD etc to rise. Why? Rising USD Index is an indicator of US Dollar becoming strong. This means EURUSD, GBPUSD, AUDUSD, NZDUSD pair are going to fall. USD is in the denominator of these pairs. Look for a double top or a double bottom pattern on USD Index and when you find it trade EURUSD, GBPUSD, AUDUSD, NZDUSD pairs accordingly. Monetary policy is not the first line of defense says Janet Yellen.

USD Index is available with my broker. You can also check with your broker. If you want, you can trade USD Index. I don’t trade USD Index but I always check it daily and take the clues from it. As said above when USD Index goes up, it means US Dollar is becoming strong and when it goes down, it means US Dollar is becoming weak. Right now USD Index is poised to move up. So expect EURUSD, GBPUSD and other currency pairs with USD in the denominator to go down and pairs with USD in the numerator to go up. How to do the technical analysis on USD Index? It is just the same that you do on other currency pairs. Watch the video below by Elliott Waves International that is making a long term prediction about USD Index.

Now as said above you should check the USD Index chart daily. It tells you about the strength weakness of the US Dollar. If you think US Dollar will get strong, you should trade the USD pairs accordingly. In the same manner, if you think US Dollar will get weak, trade the USD pairs accordingly. If you are interested in quantitative trading, you should take a look at our Markov Chain Monte Carlo Methods For Traders. In this course we teach you step by step how to use Monte Carlo simulation methods in your trading.