The DXY is calculate comparing the USD against the weight of six major world currencies, which include the Euro (EUR), Japanese yen (JPY), Canadian dollar (CAD), British pound (GBP), Swedish krona ( SEK ), and Swiss franc (CHF). The EUR makes up almost 58 percent of the basket. The weights of the rest of the currencies in the index are: JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%).
It needs some thought but if you were long on the EUR/USD and short on DXY , you're doing this all wrong. If you're short on EUR/USD and long on DXY that would be correct.
Advances of the DXY north basically means the USD is whipping the rest of the basket.
Just hold on a sec - I'm not saying the USD will whip the EUR all the time. My following of the DXY was a trend following analysis, that started on the 3-day time frame. It was an amazing experience because it brought out the characteristics of this macro-economic index. It's very wild and does not conform well to traditional strategies.
What I've learned is how unpredictable and volatile it is. You'd be gambling if you were taking shots at it on a 15 min time frame.
What seemed to work was the 'theory of curves' which basically picked out the large trend direction. I never recommended trading the DXY . I used it to get an idea what was likely to happen in other currencies with USD and how that might affect stock indices, BTC , Gold , other metals and .
The USD is still the world's major currency. It is a sort of liquid-gold. If you're the FED, you can print as much as you like. Obviously that's nice for the FED cuz they can't print gold!
But there is a problem. Most news items have said in the last 3 months that the dollar is dying fast. The reality is that the dollar has been appreciating despite all the reckless . It doesn't make sense. Who said that markets have to make sense? Not me!
So the big competition is just starting up. Do 'you' buy liquid-gold or the real gold? Do you buy liquid-gold in preference to stocks? I'm not seeking advice. It's a question for sensible traders to consider - and there may be no right answer.
What's next? How would I know? I only look at trends. The markets will tell me what's next.
Disclaimer: This is not advice or encouragement to trade securities or any asset class. This is not investment advice. Chart positions shown are not suggestions intended to assure you of an advantage. No predictions and no guarantees are supplied or implied. The author trades mostly trend following set ups which have a low win rate of approximately 40%. Heavy losses can be expected if trading live accounts or investing in any asset class. Any previous advantageous performance shown in other scenarios, is not indicative of future performance. If you make decisions based on opinion expressed here or on my profile and you lose your money, kindly sue yourself.