US Dollar Index: Share Price, Chart and Forecast
The US Dollar Index is the most popular Forex index among traders, measuring the Dollar against several currencies. It is, therefore, one of the most effective ways to invest and trade the US Dollar.
This article will explain in detail what is the US Dollar Index, its history, how it works, its evolution and prospects. We will also explain how to start trading the USDX in the best possible conditions. For this, we will introduce you to an online broker ideal to trade the Dollar Index and other currency market instruments.
What is the US Dollar Index?
The US Dollar Index is what is called a forex index. It measures the movement of the US Dollar compared to other international currencies. This way, it can evaluate how strong the Dollar against the most important forex currencies. It can be used as an aid in analyzing currency pairs, but it is also possible to trade USDX directly.
US Dollar Index Definition
The US Dollar Index, also known as USDX, DXY, DX, or "Dixie" measures the US Dollar against a basket of 6 currencies that do not all have the same weight in the index, according to the principle of geometric mean, as we will detail below.
These currencies are:
- Euro (EUR)
- Yen (JPY)
- Pound Sterling (GBP)
- Canadian Dollar (CAD)
- Swedish Crown (SEK)
- Swiss Franc (CHF)
The index was created and is managed by ICE (Intercontinental Exchange). Some traders use the US Dollar Index as a trading indicator for the analysis of other currency pairs. For example, a bullish trend on the US Dollar Index is a bearish indication for the EUR/USD pair.
But it is also possible to trade the index directly. The easiest way to do this is to use US Dollar Index CFD available from most brokers, including ZFX.
US Dollar Index Today and History
The US Dollar Index history begins in 1973. USDX was created after the Bretton Woods Agreement that tied the Dollar to gold was abandoned that year, leading to the current floating exchange rate regime. It was assigned a value of 100 points at the time of its creation.
The only change in the composition of the index during its history occurred with the creation of the Euro in 2002, when the single currency replaced several currencies in the US Dollar Index basket, including the German Mark and the French Franc.
It is worth noting that some believe that the USDX could change again in the near future to make room for the Chinese Yuan or the Mexican Peso.
The US Dollar Index Price Evolution
In this section, we will study the US Dollar Index historical data.
US Dollar Index Chart
As can be seen on the monthly US Dollar Index chart below, the Index has gone through several distinct phases in its history.
The US Dollar Index price went through a downward phase from the mid-1980s, when it was around 130 points, to a low of 78.20 in September 1992. The index then experienced almost a decade of appreciation, peaking at 121 points in July 2001. The index then corrected violently for about 7 years, reaching a low of 70.7 in March 2008, in the face of the global financial crisis.
Following this low, the US Dollar Index hovered around a pivot point at 80 points, before posting a sharp rise from July 2014 to January 2017, to a peak at 103.8 points. Since then, the index has shown a somewhat uncertain long-term trend.
What can be inferred from studying the historical evolution of the US Dollar Index price is that it displays a somewhat uncertain trend over its entire history, in contrast to stock market indices, whose direction is clearly upward on very long-term charts.
Thus, the USDX historical data suggests that it is more suitable for trading than for long-term investment. This is the case with all instruments related to the forex market.
What Influences the Price of US Dollar Index?
In this section, we will teach you how to make your own US Dollar Index predictions by explaining the main factors that influence the index's price.
- US Monetary Policy: The main fundamental factor influencing the US Dollar Index price is the Fed's monetary policy. Indeed, rate increases attract the Dollar's foreign capital, while rate cuts make the greenback less attractive. The same is true for asset purchases: The more the Fed makes asset purchases, the more the Dollar is expected to weaken.
- US Statistics: The most critical US statistics can also have a considerable and immediate influence on the price of the index. This is because the Dollar is the currency of the United States, and US statistics measure the strength of the US economy. Therefore, robust US statistics will strengthen the USDX, while disappointments on US economic indicators will likely cause the index to fall.
- Euro Developments: Finally, we should remember that the Euro represents more than 50% of the basket of 6 currencies against the Dollar. Therefore, the evolution of the European currency can also impact the price of the US Dollar Index. For example, if the ECB announces a surprise rate hike, we should expect a sharp rise in the Euro, and therefore a fall in the US Dollar Index.
The US Dollar Index Components
As mentioned above, the US Dollar Index pits the US Dollar against a basket of 6 currencies. Below is a table listing these 6 currencies and their exact weighting in the index.
USDX List of Components
As you can see below, there are significant differences in the weighting of each of the currencies within the US Dollar Index.
|Pound Sterling (GBP)||11.9%|
|Canadian Dollar (CAD)||9.1%|
|Swedish Krona (SEK)||4.2%|
|Swiss Franc (CHF)||3.6%|
Should I Trade the US Index? Points to Consider
This section will list some of the most important features of the US Dollar Index to help you determine if it is the right financial instrument for you.
- A Short Term Trading Instrument: The first thing you need to know about USDX is that it is primarily used for short-term trading, i.e., positions held for a few minutes to a few days at most. This is because the long-term trends of the US Dollar Index are not very strong. As a result, stock market indices are much more suitable for multi-year investments.
- The US Dollar Index is easy to analyze: Beginning traders will appreciate this, especially since the economic indicators that influence the index's price are clearly identified.
- UDSX and EUR/USD are inversely correlated: Since the Euro accounts for almost 60% of the US Dollar Index, it has a strong inverse correlation with the EUR/USD pair. In other words, if EUR/USD goes up, USD Dollar Index will tend to fall, and vice versa.
- The US Dollar Index can be traded via CFD, US Dollar Index futures, ETFs and mutual funds: There are many different ways to trade the US Dollar Index, depending on your profile, your goals, or what your broker offers.
- 24-hour trading: Like all Forex instruments, the US Dollar Index is quoted 24 hours a day, 5 days a week. This means that it is possible to trade the US Dollar Index in the evenings and at night, unlike stock market indices.
How Can I Trade the US Dollar Index?
Which is the best broker to buy US Dollar Index? This is a tricky question, because there are so many brokers on the market and each trader has his own needs and preferences. Nevertheless, the broker ZFX a secure, regulated and efficient, and thus will be suitable for many types of investors.
ZFX was created in 2018. Its seriousness is undoubtable, as it is regulated by the FCA. The broker provides the MT4 trading platform, which is the most widely used globally thanks to its many technical analysis and automated trading advantages.
With several types of accounts available, you’ll be able to choose the one with the leverage and the minimum deposit which suit you best. Finally, it is worth noting that on ZFX you can trade stocks, indices, forex and commodities.
How to Trade the US Dollar Index easily
Investing in the US Dollar Index through the broker ZFX is very simple and fast. Indeed, you can open account entirely online, and takes only a few minutes. Just follow these steps:
- 1 - Register with ZFX
- 2 - Make your first deposit
- 3 - Verify your ZFX account
- 4 – Trade the US Dollar Index
Let's go through each of these steps in detail.
1 - Register with ZFX
For this first step, you will need to go to the ZFX broker's website, and click on "Open an account". You will then have to fill in a registration form with your personal details, including your phone number, which will be verified by SMS.
After filling out the form, click on "Next" at the bottom of the page. Immediately after this step, ZFX will display your MT4 login and password, and invite you to download the platform.
2 - Make your first deposit
Time to fund your account. To do this, you will need to click on the "Make a deposit" button on the screen displayed immediately after registration. Then, choose a payment method. Let's take Mastercard as an example:
On this screen you need to indicate the deposit amount. Then, click on "Confirm Deposit". You will then have to enter your credit card information before the final validation of the payment.
3 - Account verification
Finally, you will need to proceed with the account verification by sending supporting documents.
As shown in the image above, you will need to upload the documents directly to the ZFX website.
4 - Buy US Dollar (USDX)
Once your documents are validated, you will then be ready to buy US Dollar Index. To do this, you need to download the MetaTrader 4 platform and login with the details that were provided to you in the first step. Then, follow the instructions that will appear. Once you are all set up, you will be able to invest in the US Dollar Index, labelled “USDX” on MT4.
Things to Know Before Investing in the US Dollar Index
Below are some valuable tips that should get you started trading the US Dollar Index in the best possible conditions.
- Technical analysis is a must: Since the US Dollar Index is an instrument best suited for short-term trading, it is essential to master technical analysis to trade it well. Indeed, in the short term, the indices react mainly according to the US Dollar Index chart and technical context.
- Monitoring the economic calendar in real-time: Traders on the US Dollar Index consult the economic calendar every morning to find out about important US statics expected during the day. Indeed, the US Dollar Index volatility is likely to spike in the event of very good or very bad statistics.
- Follow the US Dollar Index Real Time Quotes: Again, because the US Dollar Index is mostly used for short-term trading, it is essential to follow its evolution with a real-time data feed.
- CFDs are the easiest way to trade the US Dollar Index: While there are several ways to trade the US Dollar Index, the most convenient, cheapest and most accessible method is undoubtedly the use of CFDs, which you will find at the online broker ZFX.
- Efficient trading platform: Finally, you will need an efficient trading platform to trade the US Dollar Index, with all order types, and with advanced technical analysis features and US Dollar Index real time charts. For our purposes, we recommend the MT4 platform, which is available from the broker ZFX.
US Dollar Index Future, Forecast and Predictions
This section will be dedicated to forecasts for the US Dollar Index. We will first look at the fundamentals before looking at the technical background and critical medium-term chart levels.
Fundamental Analysis of the USDX
From a fundamental point of view, the fate of the US Dollar Index in the coming months and years will depend mainly on the Fed's monetary policy. Indeed, after lowering rates to zero to stimulate the economy and deal with the pandemic, experts expect the Fed to begin a rate hike cycle next year.
This will be a decisive bullish factor for the Dollar, especially since other global central banks are generally slower to raise their policy rates, offering a comparative advantage to the Dollar.
Technical Analysis and Important Thresholds on the US Dollar Index
The weekly US Dollar Index chart broadly shows that the index is currently in an uptrend after several months of decline.
The US Dollar Index has indeed bounced twice on the 89/90 point support area this year, and has since found additional support with the 50 week moving average currently at 91.65 points.
If the rally continues, the next few months' next targets will be at 95 points, then 100 points, before the 2020 peak at 103 points. On the downside, a return below the 50-week moving average would reverse the bearish bias.
Bottom Line: Is USDX a Good Investment Now?
The US Dollar Index is a diversified way to invest in Forex. It also a short-term trading instrument that has many advantages. These includes the ability to intervene in the market 24 hours a day and benefit from high leverage. In the medium term, the Fed's policy outlook promises a bullish future for the index. This is also the case for technical factors, as we have seen in our analysis.
If you too would like to start profiting from the potential of the US Dollar Index without further delay, we recommend that you take a close look at the online broker ZFX, which offers particularly advantageous trading conditions, and which offers the popular MT4 trading platform.