The world of forex trading is constantly evolving and traders are always on the lookout for indicators that can help them make informed trading decisions. One such indicator that traders often turn to is the US dollar index, which is represented by either the DX or DXY. However, the question remains: which one is better to follow?
Before we dive into the differences between the two, let’s first understand what they are. The US dollar index (USDX) is a measure of the value of the US dollar relative to a basket of foreign currencies. It was introduced in 1973 and is calculated as a weighted geometric mean of the dollar’s value compared to six major currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
The DX is the old version of the US dollar index and it only measures the value of the US dollar against six currencies. On the other hand, the DXY is the new version of the index and it measures the value of the US dollar against a basket of currencies that includes the six currencies in the DX, as well as the Australian dollar and the Chinese yuan.
So, which one is better to follow? The answer to this question depends on your trading strategy and your preferences as a trader.
If you’re a trader who prefers to focus on the six major currencies, then the DX is the better option for you. It provides a simple and straightforward measure of the US dollar’s value against these currencies. However, if you’re a trader who wants a more comprehensive view of the US dollar’s value, then the DXY is the better option. It includes the Australian dollar and the Chinese yuan, which are two of the most important currencies in the Asia-Pacific region.
Another factor to consider is the level of volatility in the markets. The DXY tends to be more volatile than the DX due to its inclusion of the Australian dollar and the Chinese yuan. This means that if you’re a trader who thrives on volatility, then the DXY is the better option for you. However, if you prefer a more stable and predictable market, then the DX is the better option.
It’s also important to note that both the DX and DXY are not perfect indicators. They only measure the value of the US dollar against a basket of currencies and do not provide a comprehensive view of the forex markets. As a trader, it’s important to use these indicators in conjunction with other technical and fundamental tools to make informed trading decisions.
In conclusion, the answer to the question of which one is better to follow – the DX or DXY – depends on your trading strategy and preferences. If you prefer to focus on the six major currencies and want a simple measure of the US dollar’s value, then the DX is the better option. However, if you want a more comprehensive view of the US dollar’s value and thrive on volatility, then the DXY is the better option. Regardless of which one you choose to follow, it’s important to use these indicators in conjunction with other tools to make informed trading decisions.
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