It was first introduced in 1973 and is maintained by Intercontinental Exchange (ICE). The index is often used as a benchmark to gauge the strength or weakness of the U.S. dollar against its major counterparts. The US dollar is the most widely used and recognized currency worldwide.
- You can typically find up-to-the-second values from reputable financial data providers, charting platforms, and brokerage services.
- One of the most important things to remember about ADX trading is that the indicator moves regardless of the direction of the underlying asset, showing only the strength of the trend.
- The sweeping tax cuts and spending bill would add an estimated $4 trillion to the federal primary deficit over the next decade and worsen the US budget deficit.
- Conversely, if the DXY escalates to 120, this is more than a numerical uptick.
- Dollar but may include a different set of currencies or weighting methodologies.
The Best brokers to trade EUR/USD
The DXY serves as a pivotal tool for traders in the expansive forex market, acting as a gauge for the US dollar’s vigor. From a fundamental perspective , traders consider economic indicators, geopolitical events, and monetary policies that affect the U.S. For instance, an interest rate hike by the Federal Reserve can strengthen the Dollar, causing the DXY to rise. Conversely, dovish statements or economic downturns can weaken the Dollar, leading to a decline in the DXY.
Similarly, an index value of 80, indicating a fall of 20 from its initial value, implies a 20% depreciation in strength relative to the other currencies. The appreciation and depreciation results are a factor of the time period in question. That happened in 1999 when the newly-created euro replaced several European currencies previously in the index, such as Germany’s predecessor currency, the deutschmark.
This formula incorporates the exchange rates and specific weights of each currency in the basket, reflecting their relative importance in the global economy. In 2022, the DXY reached a 20-year high, driven by aggressive interest rate hikes from the Federal Reserve to combat soaring inflation. The stronger dollar caused ripple effects across the global economy, including increased import costs for other countries and a dip in U.S. exports. Each currency in the index is assigned a specific weight, with the euro having the largest influence at approximately 57.6%. The dollar forex backtesting software index’s value is calculated as a weighted geometric mean of these currencies’ exchange rates. When the dollar index rises, it indicates a strengthening dollar; when it falls, it signifies a weakening dollar.
At its heart, the DXY Index serves as a barometer, reflecting the overall international value of the U.S. dollar. It’s a meticulously constructed metric, representing the weighted geometric average of the dollar’s exchange rate relative to a specific basket of six prominent foreign currencies. In simpler terms, this single, dynamic number encapsulates whether the dollar is generally gaining or losing strength compared to its major global counterparts.
- Traders can monitor economic data releases, central bank announcements, and geopolitical events to gain insights into potential movements of the DXY.
- The Federal Reserve kept the benchmark interest rate on hold, as expected.
- We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.
- One notable limitation is that the DXY Index’s basket only includes six currencies.
- A surging DXY doesn’t automatically mean markets will fall, but it can weigh down stocks, bitcoin, and gold.
Understanding its calculation and the weights of currencies like the Euro, Yen, Pound, Canadian Dollar, Krona, and Franc is crucial for accurate market predictions. This helps traders anticipate trends and reversals in currency pairs, aiding in strategic trading decisions. The DXY is an important tool for investors and businesses looking to make informed decisions in a globalized economy. Foreign exchange traders use the DXY to spot market trends and adjust their strategies. For example, when the DXY rises, it often signals a stronger dollar, which can lead to falling commodity prices like oil. A trader might use this information to anticipate shifts in currency values or commodity markets.
Understanding the DXY
However, this could be changed depending on the trader’s preference, in some occasions ADX indicator setting could range as low as seven days or as high as 30 days. The ADX indicator equals 100 times the EMA of the absolute value of (+DI minus -DI) divided by (+DI plus -DI). An ADX chart will usually feature three lines, the ADX, the positive directional indicator (+DI) and the negative directional indicator (-DI). While the currencies remain the same, the weightings have evolved over time, especially with the introduction of the euro in 1999. Our list features brokers with competitive spreads, fast execution, and powerful platforms.
Calculation and function of the DXY
As the weekly chart illustrates, the index moved from an eighteen-year high to its lowest level since February 2018 as it fell steadily through 2020 and into early 2021. The most recent low was at 89.165, only 1.015 above the early 2018 bottom, which was the lowest level since late 2014. For privacy and data protection related complaints please contact us at Please read our PRIVACY POLICY STATEMENT for more information on handling of personal data. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet. It goes without saying that nothing on this website is financial advice. Get how-to guides and investment ideas across crypto, stocks, metals, and more. Of course, in the long run, bitcoin is a much better store of wealth than the dollar. And there have been times where bitcoin and the DXY climb at the same time.
This information is provided for informative purposes only and should not be construed to be investment advice. The index is affected by macroeconomic factors, including inflation/deflation in the dollar and foreign currencies in the basket, as well as recessions and economic growth in those countries. One one good trade approach to trading the DXY is through the use of technical analysis. Traders can analyze historical price patterns, trends, and support and resistance levels to identify potential entry and exit points. Additionally, traders may employ technical indicators, such as moving averages or stochastic oscillators, to generate trading signals. To calculate the USDX, the exchange rates of these six currencies are factored in.
What is DXY in Forex?
In fact, the US Census Bureau reported that Durable Goods Orders declined by 6.3% in April, marking a stark turnaround from the 7.6% increase (revised from 9.2%) in the previous month. The reading, however, was better than the market expectation for a decrease of 7.9%. Adding to this, orders excluding transportation rose 0.2% during the reported month. The momentum lifts the index to the 99.80 region, or a fresh weekly top during the Asian session, though it seems to lack bullish conviction. The ICE U.S. Dollar Index is calculated in real-time approximately every 15 seconds.
For example, currencies such as the Chinese yuan (CNY) and Mexican peso (MXN) may replace others in the index, given the significance of China and Mexico as key U.S. trading partners. The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before placing aggressive USD bullish bets and positioning for any further gains. Traders might also opt to wait for more cues about the Fed’s rate-cut path. Hence, the focus will remain glued to the release of FOMC meeting minutes.
What is the best ADX setting for day trading?
Dollar as the quoted currency (e.g., EUR/USD) are likely to be bullish. Conversely, a stronger DXY may influence currency pairs with the U.S. For example, currency pairs like USD/CHF, with the Dollar as the base currency, tend to move in the direction of the DXY, trending upward (bullish) when the DXY is stronger. Dollar compared to other currencies, while a value below 100 signifies a weaker Dollar. For instance, an index value of 110 means the Dollar is 10% stronger than the basket of currencies, whereas a value of 90 indicates it is 10% weaker. Federal Reserve following the collapse of the Bretton Woods system, the DXY has been managed by the Intercontinental Exchange (ICE) since 1985.
Federal Reserve adjusts interest rates, it can set off a chain reaction influencing the USD’s value and, subsequently, the US Dollar Index. Copyright © 2025 FactSet Research Systems Inc.© 2025 TradingView, Inc. If you liked this piece, check out my free newsletter for how-to guides and investment insights across crypto, stocks, metals, and more.
The US Dollar Index has experienced a rollercoaster ride throughout its history. Soaring to an all-time high of nearly 165 in 1984 and plunging to almost 70 in 2007, it has, in recent years, stabilized within the range of 90 to 110. This historical context provides traders and investors with valuable insights into the index’s potential trajectory. Since the US dollar is the currency of the world’s biggest economy, the DXY can have a big impact on the global economy. The greenback is the go-to currency for international trade – and many countries and companies borrow in US dollars.
The prices of the DX futures contracts are set by the market, and reflect interest rate differentials between the respective currencies and the U.S. dollar. Each currency in the basket is assigned a weight, which is determined by its share of international trade. The euro carries the highest weight of 57.6%, followed by the Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%), and Swiss franc (3.6%). The index is then calculated by multiplying each currency’s exchange rate against the U.S. dollar by its respective weight and summing up the results. The U.S. Dollar Index, or DXY, is a measure of the value of the United States dollar relative to a basket of other major currencies.
For example, during times of economic uncertainty, investors may witness a shift in the US Dollar Index. Gaining insight into the DXY Index calculation method provides a deeper understanding of how this vital benchmark is derived. The index employs a octafx broker reviews geometric weighted average, a calculation method where the percentage changes in the exchange rates of the constituent currencies are multiplied together, as opposed to simply being added.