The strength of the currency expresses the value of the currency. For economists, it is often calculated as purchasing power, while for financial traders, it can be described as an indicator, reflecting many factors related to currency; for example, fundamental data, overall economic performance or interest rates. It can also be calculated from the currency in relation to other currencies, usually using a pre-determined currency basket. A common example of this method is the US Dollar Index. The current trend in currency strength indicators is to combine more currency indices to make forex movements visible. For the calculation of such indices, the major currencies are usually used because they represent up to 90% of the total market volume of forex.
Video Currency strength
Trading indicators based on currency strength
Currency strength is calculated from the US Dollar Index, which is used as a reference for other currency indices.
The basic idea behind the indicator is "to buy a strong currency and sell a weak currency" If the X/Y currency pair is an ascending trend, you can determine whether this happens because of the strength of X or the weakness of Y.
With these indicators can choose the most valuable partner to trade; see the reaction of each currency on movement in the correlated instrument (eg CAD/OIL or AUD/GOLD); looking for a strong trend in one currency; and observe most of the forex markets in a single chart.
Example
Common examples of indicators based on currency strength are the strength of the relative currency and the strength of the absolute currency (percentage). Their combination is called "Forex Flow indicator", as you can see the entire flow of currency across the forex market.
Maps Currency strength
See also
- Relative currency strength
- Absolute currency strength
- Trade balance
- Technical analysis
- Hard currency
- Revaluation
References
External links
- Using Currency Correlation For Your Profits
Source of the article : Wikipedia
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