Importance of dollar index analysis
In the previous article, we answered this question: What is the dollar index? We are now considering expanding this issue and clarifying the importance of Dollar index analysis for you guys. Although the dollar index alone is measurable and you can trade this indicator in most brokers in the form of futures contracts as well as ETF transactions, but due to the large spread of spreads, it usually does not hold on the dollar index and often the purpose of the analysis It’s used in other currencies and commodities.
In this regard, we must have an understanding of the role of the dollar index in valuing other currencies and commodities. As you know, the value of each currency or commodity is expressed in another currency. Given that the dollar is one of the largest economies in the world and plays a major role in the process of pricing physical and financial assets on a global scale, by default, the value of each currency or commodity versus the dollar is expressed. The pair of major currencies, called major currencies, is called a currency pair that hold on one side of the dollar and on the other side of a major currency.
Most trades in the Forex market take place on these pairs of currencies. Therefore, for the analysis of each of them, it is important to have an overview of the state of the face and denominator. For example, GBPUSD currency pair price changes are the result of changes in the value of the pound and changes in the value of the dollar. When the value of the dollar goes up to raise interest rates, the pair will drop the pound to the dollar. Also, if the value of the pound is lowered by the British withdrawal from the European Union, the result is a decline in the pound to the dollar.
So here is the significance of the dollar index analysis. with dollar index analysis , we can see better possible movements of the price chart in a pair of currencies with dollar on one side. For example, when we look at the weakness of an uptrend channel in the dollar index analysis, we can expect a decline in dollar value from a technical analysis perspective. So, in pairs of currencies, positions and analyzes that are reciprocal to the decline of the dollar and the strengthening of the currency, they are more likely to occur. Given the high weight of the euro in the Dollar basket, sometimes the dollar index is referred to as the Euro-Anti-Euro Index!
So, always keep in mind that the technical analysis of each pair of currencies or commodities is done on our chart of the pair, but by monitoring the dollar index and correlating a currency or commodity to the dollar, we can distinguish between different probabilities or analyzes Controversial, analytic, probabilistic, and more.