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The importance of dollar index analysis

The importance of dollar index analysis

In the previous article, we answered the question, what is the dollar index? We now intend to examine this issue more broadly and to clarify the importance of analyzing the dollar index for you dear ones. Although the dollar index can be traded alone and you can trade this index in most brokers in the form of futures contracts and ETF trades, but because of the spread is usually high, trading is usually not done on the dollar index and is often the purpose of analysis. It is used in trading other pairs of currencies and commodities.


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In this regard, we must have an understanding of the role of the dollar index in the valuation of other currencies and commodities. As you know, the value of any currency or commodity is expressed in another currency. Given that the dollar belongs to the largest economy in the world and plays a major role in the pricing of physical and financial assets on a global scale, the value of each currency or commodity against the dollar is expressed by default. The currency pairs that are on one side of the dollar and on the other side of the important and traded currency are called Major Currency Pair.

To trade directly on the dollar index, you can choose the most reputable one from the list of Forex brokers to open an account.

Most Forex trades are based on these currency pairs. Therefore, to analyze each of them, it is important to have an overview of the face and denominator of the fraction. For example, price changes in the GBPUSD currency pair are the result of changes in the value of the pound as well as changes in the value of the dollar. When the dollar rises to raise interest rates, the pound depreciates against the dollar. Also, if the pound depreciates due to the UK’s withdrawal from the EU, the result is a decrease in the price of the pound against the dollar.

This is where the importance of analyzing the dollar index becomes clear. By analyzing the dollar index, we can have a better view of the possible movements of the price chart in pairs of currencies, one side of which is the dollar. For example, when we see a valid break at the bottom of an uptrend in the analysis of the dollar index, we can expect a decline in the value of the dollar from the point of view of technical analysis. Therefore, in currency pairs, situations and analyzes that are toward the decline of the dollar and the strengthening of the mutual currency are more likely to occur. Due to the high weight of the Euro in the dollar index basket, the dollar index is sometimes referred to as the Anti-Euro Index!

So always remember that we do the technical analysis of each currency pair or commodity in the chart of that currency pair, but by monitoring the dollar index analysis and the correlation of a currency or commodity with the dollar, we can choose between different probabilities or analyzes. Contradictory, choose an analysis with a higher probability of occurrence.


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