European currencies are dominating the index, while Asian currencies are underrepresented. This is the reason why different Dollar indices consisting of a basket of other currencies might rise to prominence in the future. The US Dollar Index is a measure of the value of the dollar against six other major currencies. The dollar index tracks the relative value of the U.S. dollar against a basket of important world currencies.
Over time, a rising dollar is typically bearish for commodity prices, while weakness in the reserve currency is a bullish factor. A strong dollar makes local production expenses fall, allowing foreign producers to sell output at lower prices and vice versa. The US dollar is the leading reserve currency because of the long history of political and economic stability in the US, the world’s leading economy. The dollar index (DXY) trades in the futures market on the Intercontinental Exchange (ICE) and the over-the-counter market between foreign exchange dealers.
When acquiring our derivative products you have no entitlement, right or obligation to the underlying financial asset. AxiTrader is not a financial adviser and all services are provided on an execution only basis. Information is of a general nature only and does not consider your financial objectives, needs or personal circumstances. Important legal documents in relation to our products and services are available on our website. You should read and understand these documents before applying for any AxiTrader products or services and obtain independent professional advice as necessary. The NASDAQ 100 is a stock market index made up of 100 of the world’s largest non-financial companies listed on the Nasdaq stock exchange including Apple, Google, and Tesla.
What Is the U.S. Dollar Index (USDX) and How to Trade It
Andrew is a sought-after commodity and futures trader, an options expert and analyst. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Moreover, as Europe settled the Brexit issue in late 2020, it lifted the cloud of uncertainty hanging over the euro and British pound.
The U.S. Dollar Index has risen and fallen sharply throughout its history. Over the last several years, the U.S. dollar index has been relatively rangebound between 90 and 110. ICE provides live feeds for Dow Futures that appear on Bloomberg.com and CNN Money. Dollar markets are open, which is from Sunday evening New York City local time (early Monday morning Asia time) for 24 hours a day to late Friday afternoon New York City local time. Using CFDs for DXY trading allows you to trade the index in both directions; you can hold a long or short position, depending on whether you expect the price of an asset to rise or fall.
Other factors include inflation, economic performance, credit ratings, market sentiment and foreign affairs. The Bretton Wood Agreement created a new monetary hitbtc exchange review system in 1944, after which the U.S. Under the agreement, the countries would keep fixed exchange rates between their own currency and the U.S.
- However, such a strong Dollar caused problems for US exporters, who found that their goods were no longer as competitive internationally.
- The Index was adjusted once when the euro was introduced as the common currency for the European Union (EU) bloc of countries.
- If you are using technical analysis in your trading, you can analyse the US Dollar Index in pretty much the same way you would do any for any type of currency pair or stock index.
- Over half the index’s value is represented by the dollar’s value measured against the euro.
- Because the USDX is so heavily influenced by the euro, traders have looked for a more “balanced” dollar index.
- The Euro and Pound are the base currency for the two others, with these given a negative value.
As a global currency benchmark, DXY trading hours run 21 hours a day Sunday – Friday on the ICE platform, with the hours depending on the time zone. The DXY was primarily developed as a reference for US external trade, and the ability to trade the Dollar Index futures was introduced later, in 1985, with options trading following in 1986. Trading on the index is maintained by the Intercontinental Exchange (ICE). The value of each currency is multiplied by its weight, which is a positive number when the U.S. dollar is the base currency. In the equation above, the euro has the most weight, followed by the Japanese yen and the British pound.
What Does the Dollar Index Tell You?
It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits oanda forex broker review or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material. Dollar Index trading is a great way for investors to gain exposure to the US dollar and take a position on the US economy and/or the global market.
The basket of currencies consists of the Euro, Swiss Franc, Japanese Yen, Canadian Dollar, British Pound, and Swedish Krona. The index is affected by macroeconomic factors, including inflation/deflation in the dollar and foreign currencies included in the comparable basket, as well as recessions and economic growth in those countries. As a stronger currency can reduce demand for exports to other countries that pay for the goods with relatively weaker currencies, some governments pursue policies to keep down their nation’s currency value. Conversely, countries that import heavily favour a stronger currency to reduce the foreign exchange cost of paying for those imports.
How Do You Calculate the USDX Index Price?
The Euro and Pound are the base currency for the two others, with these given a negative value. Learn everything you need to know about index trading and how it works in this guide. Simply sign up for a demo trading account to practice trading the USINDEX.fs, or if you are ready to jump into the world of trading, get yourself a live trading account.
Therefore, if we take the current price of 98.50, one contract would be worth $98,500. Dollar Index as it allows them to monitor the value of the Greenback compared to a basket of major currencies. If a trader is convinced the US Dollar will appreciate across the board, it might be simpler to place a single trade betting on a rising US Dollar Index instead of having to manage multiple forex positions. Some market participants also use the US Dollar Index for hedging purposes.
In addition to futures and options contracts, one of the easiest and most popular ways to trade the DXY is with contracts for difference, or CFDs. A CFD is a type of contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of an asset, between the opening and closing of the trade. Therefore, when you trade DXY using CFDs, you speculate on the direction of the underlying asset’s prices without actually owning it. The DXY refers to the US Dollar Index, which is the global benchmark for the value of the US dollar measured against a basket of foreign currencies. The ICE U.S. Dollar Index futures contract is the only publicly available, regulated market for U.S. Dollar Index trading allowing virtually round-the-clock access to futures traders around the world.
In March 2020, at the height of the risk-off price action caused by the global pandemic, the dollar index spiked higher. The US dollar’s role as a reserve currency makes it a safe-haven during turbulent market periods. The U.S. dollar index allows traders to monitor the value of the USD compared to a basket of select currencies in a single transaction. It also allows them to hedge their bets against any risks with respect to the dollar. The index started in 1973 with a base of 100, and values since then are relative to this base. It was established shortly after the Bretton Woods Agreement was dissolved.
The U.S. Dollar Index (USDX) is a relative measure of the U.S. dollars (USD) strength against a basket of six influential currencies, including the Euro, Pound, Yen, Canadian Dollar, Swedish Korner, and Swiss Franc. The USDX can be used as a proxy for the health of the U.S. economy and traders can use it to speculate on the dollar’s change in value or as a hedge against currency exposure elsewhere. The USDX is based on a basket of six currencies with different weightings (see above). The index calculation is simply the weighted average of the U.S. dollar exchange rates against these currencies, normalized by an indexing factor (which is ~50.1435). The U.S. Dollar Index can be traded as a futures contract for 21 hours a day on the ICE platform. The U.S. Dollar Index futures contract derives its liquidity directly from the spot currency market, estimated to have a turnover of over $2 trillion daily.
The liquidity on the futures contract for the US Dollar Index comes from the spot currency market, which ICE estimates has a daily turnover of more than $2trn. There is a market maker program that helps to ensure continuous liquidity throughout the day in electronic trading. The value of the DXY is driven by demand and supply of the US dollar, as well as the component currencies pepperstone canada in the index. Currency demand is affected by monetary and trade policy as well as economic growth, inflation, geopolitical events and broad financial market sentiment. A DXY graph shows that the index fell steadily until it bottomed out in 2008, when the global financial crisis prompted a flight to safe-haven financial assets like the global reserve currency.
As well as being a trader, Milan writes daily analysis for the Axi community, using his extensive knowledge of financial markets to provide unique insights and commentary. This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Applying fundamental analysis might prove slightly more difficult, as you would have to take into consideration data and information from various countries.
The U.S. dollar index is a measurement of the dollar’s value relative to six foreign currencies as measured by their exchange rates. Over half the index’s value is represented by the dollar’s value measured against the euro. The other five currencies include the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The US Dollar Index was originally created by the U.S. central bank in 1973 to provide an external bilateral trade-weighted average value of the Greenback. This was triggered by the end of the gold standard and the floating of currency exchange rates. The index was created to help traders understand how strong or weak the U.S. dollar is in relation to foreign currencies such as the Euro, Canadian Dollar, and Japanese Yen.