Forex Academy Professional The USDX Components | The USDX Components |
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Now that we know what the basket of currencies are, let’s get back to that “geometric weighted average” part. Because not every country is the same size, it’s only fair that each is given appropriate weights when calculating the U.S. Dollar Index. Check out the current weights:  As you can see, with its 12 countries, euros make up a big chunk of the U.S. Dollar Index. The other five make up less than 43 percent. Here's something interesting: When the euro falls, which way does the U.S Dollar Index move? The euro makes up such a huge portion of the U.S. Dollar Index, they might as well call this index the "Anti-Euro Index". Because the USDX is so heavily influenced by the euro, people have looked for a more "balanced" dollar index. More on that later though. First, let's go to the charts! How to Read the U.S. Dollar IndexHere’s a chart of the U.S. Holler at the Dollar Index:  First, notice that the index is calculated 24 hours a day, seven days a week. The USDX measures the dollar’s general value relative to a base of 100.000. Huh?! Okay. For example, the current reading says 86.212. This means that the dollar has fallen 13.788% since the start of the index. (86.212 - 100.000). If the reading was 120.650, it means the dollar’s value has risen 20.650% since the start of the index. (120.650 – 100.00) The start of the index is March 1973. This is when the world’s biggest nations met in Washington D.C. and all agreed to allow their currencies to float freely against each. The start of the index is also known as the “base period”. The U.S. Dollar Index FormulaThis is strictly for the grown and geeky. Here is the formula to calculating USDX: USDX = 50.14348112 × EURUSD^(-0.576) × USDJPY^(0.136) × GBPUSD^(-0.119) × USDCAD^(0.091) × USDSEK^(0.042) × USDCHF^(0.036) |
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