What is the US Dollar Index and How Can it Benefit My Online Forex Trading?

By Content-mgr - on September 18, 2016

Traders can use indices such as the US dollar index, to improve their online forex trading. It’s about chart patterns, high probability setups and geopolitics.

Wiser Online Forex Trading through Index Analysis

Online forex trading, especially on EURUSD, can be dramatically enhanced. Simply by taking into account the US dollar index, which is a measure of the US dollar against 6 other currencies. The US dollar index does provide chart patterns and technical setups from time to time. But when geopolitical factors are in control, they override all other signals. Even economic reports and fundamental analysis. The US dollar index can defy all popular methods of market forecasting, and do the impossible. Especially at times where it has been weak. It can rally sharply without any economic data supporting that rally. Traders who learn forex basics hardly ever learn anything about geopolitics. Since it’s an entire science on its own. But to EURUSD traders, the US dollar index is important, every single week. Just by learning the inner workings of the US dollar index, traders can do so much more. The US dollar index impacts many more currencies, not just the EURUSD pair. But by trading volume EURUSD is the biggest one out there.

Enhancing Online Forex Trading through the Use of the US Dollar Index

The US dollar index can be used to assess the validity of signals observed on EURUSD charts. Online forex trading becomes better when false signals are detected and avoided. And the US dollar index does provide valuable clues from time to time. Its actual daily trend however can be quite deceiving to new traders. It is possible for the US dollar to exhibit apparent weakness, and yet still be strong internally. In such cases, traders need to pay attention to uncertainty. As well as geopolitical factors causing such uncertainty. As always, markets go down when there is increased uncertainty. And markets go up when excessive uncertainty is removed. More often than not, the actual way of interpreting such data is counter intuitive. The market sees even bad news, as good news, as long as the negative impact is quantified. The moment an expected negative impact becomes known in magnitude, from previously being unknown. Markets regard the transition as good news, since uncertainty is actually removed.

Profiting from EURUSD and Other Dollar Crosses

EURUSD is quite interesting to trade, and the patterns observed on the US dollar index are also interesting. Both obvious ones, as well as less obvious ones. If for example the US dollar index is expected to remain flat for a week. And there are good reasons for this to happen. Then EURUSD will have limited upside potential. And depending on the exact chart patterns at the time, the day to day movements may become much easier to predict. For scalpers, it may also make it possible to get better, safer periods of time to scalp a particular pair, such as EURUSD. On the contrary, when the US dollar index is set to make a move, and there are no geopolitical risks counter to the movement. Then, EURUSD will move in the opposite direction, and conflicting signals will be overridden. This is why trading can be sop confusing. And this is why CFD trading forex strategies focus so much on avoiding or hedging false signals. Because if one approaches the markets with a naive mindset, they won’t be able to detect these false signals. In the case of the EURUSD, we have seen time after time, all experts appearing in the media, fail to predict it. Even investment bank analysts fail. Simply because they focus too much on economics, and not enough on geopolitics.

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