Giles Coghlan LLB, Lth, MA
Financial Source
The USD is the currency that all others revolve around. Understanding that is a key concept to grasp early on in your trading experience. The moves in the major pairs over the last few weeks have mainly been dollar-driven. Specifically, it has been a weaker dollar on the huge stimulus measures out of the US and the virtually unlimited QE programme. All this has resulted in the present dollar weakness which has been driving the major pairs higher. So, here are a couple of practical applications to take away and apply to your trading.
Firstly, when you are trading major pairs, always look at the US dollar Index. The overall USD strength or weakness will help show you the near term expected direction in the major pairs. Here is a setup below that you can use. The Dollar Index is in the bottom right of the charts and all the majors are visible at a glance. It is helpful to lay out the major pairs alongside the Dollar Index like this:
Secondly, whenever you are trading the EURUSD remember that the DXY and EURUSD always move in the opposite direction. DXY up, EURUSD down. EURUSD up, DXY down. This is why the Dollar Index is also known as the 'anti-EURUSD index'. (check out the below chart - DXY orange line, the candlestick chart is the EURUSD). So, this means that you never want to be trading the EURUSD higher if the DXY is moving higher and vice versa.
Grasping the USD focus of the FX world is extremely important to understand. You can use this lesson to improve your handling of the major pairs and in particular the EURUSD pair.
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Editors’ Picks
EUR/USD regains traction, recovers above 1.0700
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