Building Currency Strength Indices from Six Major Forex Pairs

Summary

The document describes an indicator that estimates the index of a selected currency using the USD index and closing prices from six currency pairs: EURUSD, USDJPY, GBPUSD, USDCAD, USDSEK, and USDCHF. It gives examples of converting the USD index into EUR and CHF indices, using multiplication or division according to the pair’s quote direction. The selected instrument is the indicator’s only input parameter, and it can be displayed on charts for any currency pair.

The calculation depends on having historical data for all six component pairs. The indicator may take time to load that history when first run or when the chart timeframe changes, and it calculates the index after loading completes. The document illustrates indices for several currencies, but provides no quantitative evaluation, benchmark comparison, or trading rules. It therefore explains a currency-strength measurement tool, not evidence that trading from the resulting index is profitable. Its output also depends on the USD index and the availability and consistency of the component price histories.

Key ideas

• The indicator derives a selected currency index from the USD index and six major currency pairs.
• Pair quote direction determines whether the conversion multiplies or divides by the relevant rate.
• Historical data for every component pair must be loaded before the index can be calculated.
• The document describes an indicator, but does not provide a trading strategy or performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.