DXY in detail
What is DXY ?
The U.S. Dollar Index (DXY) is a measure of the value of the U.S. dollar relative to a basket of six major foreign currencies. It is a weighted geometric mean of the exchange rates between the U.S. dollar and these currencies. The DXY was created in 1973 with a base value of 100 and serves as a benchmark to assess the strength of the U.S. dollar in comparison to other global currencies.
The basket of currencies and their respective weightings in the DXY are as follows:
Euro (EUR) - 57.6%
Japanese Yen (JPY) - 13.6%
British Pound Sterling (GBP) - 11.9%
Canadian Dollar (CAD) - 9.1%
Swedish Krona (SEK) - 4.2%
Swiss Franc (CHF) - 3.6%
The weights assigned to each currency in the formula are based on the trade weights of the currencies, which reflect the importance of each currency in international trade.
An analogy to explain DXY could be imagining a shopping cart filled with distinct items, each with a different price tag. The DXY is like the total value of the items in the shopping cart, where each item represents a currency in the basket. Just as the total value of the items in the shopping cart can fluctuate based on the price of each item, the value of the US dollar in the DXY can fluctuate based on the exchange rate of each currency in the basket.
For example, if the exchange rate of the euro, yen, and other currencies in the basket decrease relative to the US dollar, the value of the US dollar in the DXY would increase. Conversely, if the exchange rate of these currencies increases relative to the US dollar, the value of the US dollar in the DXY would decrease.
Following is how it's precisely calculated:
The DXY, is calculated as a weighted geometric mean of the US dollar's value relative to the six major currencies in the basket. The formula to calculate the DXY is:
DXY = 50.14348112 × EURUSD^(-0.576) × USDJPY^(0.136) × GBPUSD^(-0.119) × USDCAD^(0.091) × SEKUSD^(0.042) × CHFUSD^(0.036)
where:
EURUSD is the exchange rate of the euro to the US dollar
USDJPY is the exchange rate of the yen to the US dollar
GBPUSD is the exchange rate of the British pound to the US dollar
USDCAD is the exchange rate of the Canadian dollar to the US dollar
SEKUSD is the exchange rate of the Swedish krona to the US dollar
CHFUSD is the exchange rate of the Swiss franc to the US dollar
As an example, let's say that on a particular day, the exchange rates of the currencies in the basket are:
EURUSD = 1.2000
USDJPY = 110.00
GBPUSD = 1.4000
USDCAD = 1.2500
SEKUSD = 0.1200
CHFUSD = 0.9000
To calculate the DXY for this day, we would plug these values into the formula and solve:
DXY = 50.14348112 × 1.2000^(-0.576) × 110.00^(0.136) × 1.4000^(-0.119) × 1.2500^(0.091) × 0.1200^(0.042) × 0.9000^(0.036)
DXY = 90.546
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Keep learning and Happy trading All.
The U.S. Dollar Index (DXY) is a measure of the value of the U.S. dollar relative to a basket of six major foreign currencies. It is a weighted geometric mean of the exchange rates between the U.S. dollar and these currencies. The DXY was created in 1973 with a base value of 100 and serves as a benchmark to assess the strength of the U.S. dollar in comparison to other global currencies.
The basket of currencies and their respective weightings in the DXY are as follows:
Euro (EUR) - 57.6%
Japanese Yen (JPY) - 13.6%
British Pound Sterling (GBP) - 11.9%
Canadian Dollar (CAD) - 9.1%
Swedish Krona (SEK) - 4.2%
Swiss Franc (CHF) - 3.6%
The weights assigned to each currency in the formula are based on the trade weights of the currencies, which reflect the importance of each currency in international trade.
An analogy to explain DXY could be imagining a shopping cart filled with distinct items, each with a different price tag. The DXY is like the total value of the items in the shopping cart, where each item represents a currency in the basket. Just as the total value of the items in the shopping cart can fluctuate based on the price of each item, the value of the US dollar in the DXY can fluctuate based on the exchange rate of each currency in the basket.
For example, if the exchange rate of the euro, yen, and other currencies in the basket decrease relative to the US dollar, the value of the US dollar in the DXY would increase. Conversely, if the exchange rate of these currencies increases relative to the US dollar, the value of the US dollar in the DXY would decrease.
Following is how it's precisely calculated:
The DXY, is calculated as a weighted geometric mean of the US dollar's value relative to the six major currencies in the basket. The formula to calculate the DXY is:
DXY = 50.14348112 × EURUSD^(-0.576) × USDJPY^(0.136) × GBPUSD^(-0.119) × USDCAD^(0.091) × SEKUSD^(0.042) × CHFUSD^(0.036)
where:
EURUSD is the exchange rate of the euro to the US dollar
USDJPY is the exchange rate of the yen to the US dollar
GBPUSD is the exchange rate of the British pound to the US dollar
USDCAD is the exchange rate of the Canadian dollar to the US dollar
SEKUSD is the exchange rate of the Swedish krona to the US dollar
CHFUSD is the exchange rate of the Swiss franc to the US dollar
As an example, let's say that on a particular day, the exchange rates of the currencies in the basket are:
EURUSD = 1.2000
USDJPY = 110.00
GBPUSD = 1.4000
USDCAD = 1.2500
SEKUSD = 0.1200
CHFUSD = 0.9000
To calculate the DXY for this day, we would plug these values into the formula and solve:
DXY = 50.14348112 × 1.2000^(-0.576) × 110.00^(0.136) × 1.4000^(-0.119) × 1.2500^(0.091) × 0.1200^(0.042) × 0.9000^(0.036)
DXY = 90.546
I have over 6 years of trading and investing experience and have learned a lot in this time. I like to share what I have learned and if you like my content and would like to learn from my experience hit like and follow me for getting notified on my trade, market projections and several upcoming tutorials on technical analysis and several technical Indicators. you can also leave a comment and let me know if you want me to analyze any specific asset or want to learn about any specific topic in the world of Technical Analysis. I Will do my best to create a post for it.
Keep learning and Happy trading All.
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