How to Use the Dollar Index in Forex (DXY, USDX)

The US Dollar Index (DXY, USDX) is a measure of the value of the US Dollar relative to the following basket of currencies: EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD, USD/SEK. The Dollar Index has its own chart and can be traded just like any pair. More importantly, the Dollar Index can be used as an additional confluence to trading other pairs, particularly those with USD in the base or quote currency.

The following is an example using the Dollar Index as an additional confluence to the EUR/USD. Let’s hypothetically say we identify a Double Top Reversal forming on the EUR/USD indicating to trade Down. Now we look over to the Dollar Index chart. If we identify a Double Bottom Reversal on the Dollar Index, that would provide an additional confluence for a Sell Order on the EUR/USD. Now, let’s hypothetically say we identify a Double Bottom Reversal forming on the EUR/USD indicating to trade Up. Now we look over to the Dollar Index chart. If we identify a Double Top Reversal on the Dollar Index, that would provide and additional confluence for a Buy Order on the EUR/USD.