CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

So you want to trade the DXY EURUSD USDCHF

February 17, 2021 3:56 PM

So you want to trade the DXY?: EUR/USD, USD/CHF

The US Dollar Index (DXY) is a measure of the value of the US Dollar relative to a basket of foreign currencies. The current breakdown of the DXY is as follows:

  • EUR 54.6%
  • JPY 13.6%
  • GBP 11.9%
  • CAD 9.1%
  • SEK 5.2%
  • CHF 3.6%

Below is a daily chart of DXY:

Source: Tradingview, City Index

Since the US economic data on Wednesday, the DXY is trying to push higher through trendline resistance.   Some people may want to take advantage of trading the DXY, but don’t have access to it, because it is a not a currency “pair”.  It is a currency index. 

Since Euro makes up over half of the US Dollar index, one can trade the EUR/USD to take advantage of the DXY moves.  Typically, EUR/USD and DXY move inversely to each other. That is, when one instrument moves higher, the other moves lower, and vis a versa.  Notice, at the bottom of the EUR/USD daily chart below, that the correlation coefficient between EUR/USD and the DXY is currently -0.97.  For reference, a reading of -1.00 would mean the 2 assets are perfectly, negatively correlated.  -0.97 is pretty close! Therefore,  if one believes DXY may go higher, that person may wish to consider selling EUR/USD as a proxy for the DXY.  (See our current EUR/USD analysis here.)

Source: Tradingview, City Index

Another way to take trade the DXY , which is perhaps less obvious, is via the USD/CHF.  The Swiss Franc only makes up 3.6% of the DXY, so why would this be a good proxy to use?  The bottom of the USD/CHF chart below shows that the correlation coefficient between USD/CHF and DXY is +0.94.  For reference, a reading of +1.00 would mean the 2 assets are perfectly, positively correlated.  +0.94 is pretty close!  Therefore, if one believes DXY may go higher, that person may wish to consider buying USD/CHF as a proxy for DXY.

Source: Tradingview, City Index

Notice how on all three charts above,  price tried to breakout on February 4th, only to reverse on February 5th and trade back into the range.  In addition, notice how all three assets recently tested support/resistance on February 16th, only to reverse and trade higher/lower on February 17th.  The February 4th/5th resistance/support levels will be key for the US Dollar to move higher.

Word of caution:  Use proper risk/reward when trading these instruments.  If one is short EUR/USD and long USD/CHF,  that person is long 2 times the amount of US Dollars.

Learn more about forex trading opportunities

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024