The dollar index is not telling the full dollar story

April 29, 2014 by Nanakiver3

Many traders use the dollar index as an indicator for the overall dollar direction, if you were to look at the dollar index 1 hour chart you would think dollar strength across the board.


DXY 1 hour chart

Despite what looks like dollar strength we have GBPUSD and AUDUSD nearing session highs, USDCAD nearing nearing session lows and only EURUSD at session lows on the back of the softer inflation data from Germany. This is because of how the dollar index is calculated with more weighting given to the EURUSD in the basket but it also tells another story to me, EURUSD is worth a buy here as it is lagging the other dollar pairs, I like buying EURUSD down here and buying USDCAD should the dollar start to gain strength.