The Dollar is preparing to close the week with an increase. This would be the third positive result weeks in a row for the Greenback.
Just yesterday the Dollar Index had reached a two-month high settling at 104.31. Today the index curve appears to be down, however even if the Octave were to close in red, the week would remain positive (considering past data and trends, a progression of 0.8 percent can be expected) .
The progress of the Dollar Index should be correlated with the debate on raising the debt ceiling that is underway in the USA. If for three weeks in a row the dollar index performed so well it was thanks to the strong internal tensions in the American administration. By the way just at the time when fears for a failure to agree on the debt ceiling they got stronger, that’s when we started talking about default risk for the United States (triple A for all agencies except Standard and Poor’s).
In the last few hours there has been some progress in the talks between President Joe Biden and that of the House Kevin McCarthy and thanks to these steps forward the tension has eased. With this in mind sentiment has improved slightly and currencies which by their nature are more sensitive to risk strengthened precisely on the Greenback. As some analysts have commented, it is now a question of understanding whether this trend is destined to consolidate or whether it will be just a parenthesis.
You don’t need to be a great connoisseur of financial mechanisms to understand that everything will depend on the outcome of the debt negotiations. The fact is that expecting news for the next few days could be at least reckless. Tomorrow is Saturday and the US stock market is closed on Monday for Memorial Day.
What is the Dollar Index?
The Dollar Index is one of the most important metrics when it comes to Forex. In addition to being a very relevant indicator, it is also an asset that can be traded. Obviously, since it is an index, it is necessary to resort to derivative instruments in order to operate. CFDs on the Dollar Index are the most immediate and complete way to speculate on the US Dollar Index or USDX.
All the best CFD brokers offer the possibility to invest on the Dollar Index with Contracts for Difference. Our advice, though, is to only use brokers who specialize in Forex such as InstaForex which, not surprisingly, was elected by the International Business Magazine as the best broker in Central and Eastern Europe also thanks to unparalleled trading conditions with zero spreads. We will analyze InstaForex more closely in the next paragraphs. Even now, however, those interested in investing with this broker (both because they have never traded CFDs and in case you simply want to change brokers) can open a free demo account of 100,000 virtual euros with which to practice.
But let’s go back to the Dollar Index. Technically this indicator offers a measurement of the value of the US dollar against a weighted basket of other countries’ currencies. It was launched in 1973 by the Fed with the aim of providing a representation of the value of the dollar against other major currencies.
The Dollar Index is composed of a selection of six major currencies: Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD) and Swedish Krona (SEK). These currencies do not have the same weight for the purpose of determining the index. In reality, the greater the commercial importance that the reference country has vis-à-vis the United States, the greater the weight of the currency. The euro is currently the most significant component of the Dollar Index, with a greater weight than other currencies.
How the Dollar Index works
The fluctuations that the Dollar Index has been experiencing in recent weeks in the wake of tensions over raising the US debt ceiling is a clear demonstration of how this important Forex indicator works.
The index is calculated using a formula that takes into account the weighted exchange rate of currencies against the US dollar. In essence, it measures the strength or weakness of the dollar against this basket of currencies. If the value of the index increases then an appreciation of the dollar is taking place against the other currencies in the basket. In the opposite case, ie in the presence of a decrease in the index, a phase of weakness of the dollar is in progress against those same currencies.
The Dollar Index it is widely used as an analysis tool for traders, who tend to use it to evaluate the trends and volatility of the US dollar in international financial markets. But, as previously mentioned, the Dollar Index can also be traded through CFDs.
How to trade Dollar Index CFDs with InstaForex
For some Italian investors, the InstaForex broker could say little. In reality we are talking about an operator, specialized in FX CFDs who has a long history behind them on the European markets. In Italy it is known that all the news comes in slow motion and it is precisely to meet the needs of our readers that some time ago we wrote a review on InstaForex complete with opinions.
That said, InstaForex is successful because it doesn’t charge spreads on Forex pairs and allows you to trade 24/7 with complete confidence. Trading with InstaForex means favoring instant execution of orders. There average speed on MetaTrader 5 accounts it is in fact just 0.15 seconds. No one is faster than InstaForex in transmitting positions (and after all, the brand follows its commitment to guarantee speed, precision and efficiency).
At InstaForex you can choose between 3 different account types (including the VIP one). Above all, however, beginners should start their experience in demo mode, in order to have the opportunity to learn how brokers and platforms work without the risk of losing real money.
Among other things InstaForex also provides exclusive tools that have a lot of weight in Forex Trading such as the Autochartist for example. And then a robust section dedicated to training as well as other additional features such as the trader calculator, the VPS service and the dividend calculator.
A gem that no broker offers is the corner dedicated to forex humor where you can find jokes and lots of friendly cartoons and caricatures on the hottest topics of the global economy
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