The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) is a tradeable U.S. Dollar index that measures the value of the U.S. dollar relative to a basket of four major world currencies – the euro, Japanese yen, British pound, and Australian dollar. The index provides forex traders with a reliable benchmark for tracking the strength of the U.S. dollar against other major currencies.

Overview of the Dow Jones FXCM Dollar Index

The Dow Jones FXCM Dollar Index was launched in early 2014 through a partnership between Dow Jones Indexes and forex broker FXCM. It is calculated and published by Dow Jones Indexes and is licensed for use to FXCM Inc.

The index is calculated using an exponential weighted moving average formula and represents the value of a notional portfolio of currency futures contracts representing each of the component currencies within the index.

The component currencies and their respective weights are:

  • Euro (EUR): 57.6%
  • Japanese Yen (JPY): 13.6%
  • British Pound (GBP): 11.9%
  • Australian Dollar (AUD): 16.9%

These currency weightings within the index are based on data from the Bank for International Settlements (BIS) on global FX turnover and represent the relative importance and liquidity of each currency component.

The base date for the index is March 10, 2014 with a base level of 100.000. The index levels reflect the appreciation or depreciation of the U.S. dollar against the basket of currencies from this base level. An index level above 100 indicates a stronger dollar, while a level below 100 indicates a weaker dollar versus the basket.

Key features of the Dow Jones FXCM Dollar Index:

  • Tradeable and transparent benchmark for U.S. dollar strength
  • Based on four major, liquid currency pairs
  • Currency weightings based on triennial BIS survey data
  • Calculated and published in real-time
  • Tradable directly as a futures contract

The ability to trade the Dollar Index as a futures contract provides forex traders with a centralized hedging and speculating tool around the broader U.S. dollar, beyond just trading the individual USD pairs.

Calculating the Dow Jones FXCM Dollar Index

The Dow Jones FXCM Dollar Index is calculated using the following formula:

USDOLLAR = 100 x (1 / Σ wi x fi)


wi = Weight of currency i fi = Spot rate of currency i against the U.S. dollar

On any given day, the latest spot exchange rate for each currency component (EUR/USD, USD/JPY, GBP/USD, AUD/USD) is plugged into the formula to calculate the index level.

The weights wi remain constant, while the spot rates fi change daily based on the market prices.

For example, on August 25, 2023, the spot rates were:

  • EUR/USD: 1.1000
  • USD/JPY: 136.42
  • GBP/USD: 1.2250
  • AUD/USD: 0.6900

Plugging this into the index formula yields:

  • EUR weight (w1): 0.576
  • EUR spot rate (f1): 1.1000
  • YEN weight (w2): 0.136
  • YEN spot rate (f2): 136.42
  • GBP weight (w3): 0.119
  • GBP spot rate (f3): 1.2250
  • AUD weight (w4): 0.169
  • AUD spot rate (f4): 0.6900


USDOLLAR = 100 x (1 / (0.576 x 1.1000) + (0.136 x 136.42) + (0.119 x 1.2250) + (0.169 x 0.6900))

USDOLLAR = 100 x (1 / 0.6336 + 18.5915 + 0.1457 + 0.1166)

USDOLLAR = 100 x (1 / 19.4874)

USDOLLAR = 113.34

The index level was 113.34 on this date, indicating the dollar was 13.34% stronger versus the basket than at the March 2014 base level.

This example illustrates how the relative strength or weakness of the U.S. dollar versus the four currencies flows through to the overall index based on their respective weights.

Usages and Applications of the Dollar Index for Forex Traders

The Dow Jones FXCM Dollar Index serves several key utilities for currency traders and investors:

1. Gauge Overall USD Strength or Weakness

The index aggregates the performance of the U.S. dollar versus four major currencies into one easy-to-track benchmark. Traders can quickly check the index level intraday or daily to get a sense of broad USD strength or weakness.

A rising index indicates a stronger greenback, while a falling index shows general dollar weakness. Monitoring the index level and direction can inform analysis on individual USD pairs.

The Dollar Index provides a more generalized view of the overarching trend and market sentiment on the U.S. dollar. Sustained up or down moves in the index often reflect major macro trends impacting the dollar’s attractiveness.

Traders can look to trade in the direction of the broader trend shown by the index. For example, if the index is in a strong uptrend, traders may favor being long USD pairs and short EUR/USD, GBP/USD, and AUD/USD specifically.

3. Gauge Relative Currency Performance

While the Dollar Index measures the U.S. dollar against major currencies, traders can also assess how these major currencies are performing relative to one another by analyzing index moves.

For example, on a day when the index rallies sharply, this indicates broad USD strength. But looking at which currency pairs moved most adversely shows which specific currency weakened the most that day.

If EUR/USD saw an outsized drop compared to GBP/USD or AUD/USD, it may indicate euro-specific weakness rather than broad USD strength. The index provides context around relative currency moves.

4. Strategic Hedging Tool

In addition to its uses for speculation and analysis, the Dollar Index also serves as an effective hedging tool due to the futures contracts available based on the index.

Traders with broad exposure to international assets, currencies, and multinational investments can hedge this portfolio risk by buying Dollar Index futures or options. The index hedge helps offset losses from a strengthening dollar.

For example, a UK firm with most revenue in U.S. dollars may buy Dollar Index call options as protection against the dollar rising sharply relative to the pound, which would hurt profits converted back into GBP.

5. Reference for Monetary Policy Divergence

Divergence in monetary policies between the Federal Reserve and other central banks often drives major trends in FX markets. When the Fed is more hawkish than the ECB, BOE, or RBA, the dollar tends to strengthen based on interest rate differentials.

The Dollar Index serves as a clear reference for visualizing the impacts of policy divergence. Traders can trade the index direction that typically emerges when the Fed policy stance diverges from other central banks.

For 2022, aggressive Fed tightening compared to still-dovish ECB and BOJ policy fueled a strong Dollar Index uptrend. Traders positioned long based on the policy divergence.

Factors That Influence the Dollar Index

Many macroeconomic factors and market dynamics can impact the level and price action of the Dow Jones FXCM Dollar Index. Being aware of these driving forces helps traders understand and anticipate index moves.

Relative Economic Performance

Economic performance disparities between the U.S. and other major economies is a primary driver of long-term Dollar Index trends. Faster U.S. growth or quicker recoveries from recessions tends to correspond with a stronger dollar relative to lagging economies abroad.

Metrics like GDP growth, jobs data, and manufacturing PMIs that show a robust U.S. economy versus struggling Europe or Japan put upward pressure on the index. Relative growth differentials impact capital flows between currencies.

Divergence in Monetary Policy

As noted earlier, central bank rate decisions that alter policy divergence between the Federal Reserve and ECB, BOJ, RBA are major Dollar Index drivers.

When the Fed turns more hawkish by hiking rates aggressively while other central banks maintain easy policy, the dollar strengthens based on higher yield differentials. This policy divergence shows up clearly in Dollar Index trends.

Risk Sentiment & Market Volatility

In periods of negative risk sentiment, fear, and volatility – such as corrections in global equity markets – the U.S. dollar and Dollar Index tend to benefit from haven capital inflows.

In market crashes or crises, panic causes a flight to the safety of U.S. dollar-denominated assets. This manifests in gains for the dollar against other major currencies, lifting the Dollar Index.

Geopolitics & Global Uncertainty

Geopolitical tensions, events, and uncertainty similarly stoke haven demand for U.S. assets and the dollar as a safe store-of-value. Geopolitical risks may arise from Korean Peninsula tensions, Middle East conflicts, U.S.-China relations, and other global flashpoints.

Flare ups in geopolitical instability consistently lift the Dollar Index by driving flows into dollars. The dollar acts as a safe haven and disaster hedge amid global tensions.

Technical Trading Factors

In addition to fundamental drivers, technical trading factors related to charts, momentum, option positioning, risk sentiment, and other dynamics can impact Dollar Index movements.

These technical flows can occasionally overshoot or detach from fundamentals in the short run but tend to align over longer periods.

Trading the Dollar Index: Strategies & Approaches

Now that we’ve covered the Dollar Index calculation, uses, and key drivers – let’s discuss how traders actually apply the index in developing trading strategies and analyses.

Trading the Index as a Benchmark

The most straightforward approach is utilizing the Dollar Index simply as a directional macro benchmark for the U.S. dollar against major currencies. Traders check the index intraday to gauge if the dollar is strengthening or weakening broadly.

Based on whether the index is rising, falling, or range-trading – traders look to enter trades in line with the prevailing trend across USD pairs like EUR/USD. If the index is climbing steadily, traders would lean long on the dollar against the euro and pound.

Traders may enter index-aligned trades on any USD pairs, but the index provides particular trading signals for pairs with the most index representation like EUR/USD. Check the index daily and look to trade the direction on USD pairs.

Identifying Divergences

Beyond just trading the index direction, traders can also use the Dollar Index for mean reversion strategies by identifying divergences between the index and specific USD currency pairs.

Sometimes USD pairs disconnect or decouple from the broader index trend. For example, the index could be rising while EUR/USD is flat or falling. This creates an opportunity to fade the EUR/USD move and trade back towards the index direction.

Analyze both the index and USD pairs you’re trading to spot when asset correlations break down and divergences emerge to trade back to the mean. The index provides clues on when USD pairs overextend.

Hedging Strategies

The index also serves as a useful hedging tool to hedge exposures to the U.S. dollar versus foreign currencies. Investors with international assets can short Dollar Index futures or buy puts to hedge dollar upside risk against foreign profits or revenues.

For example, a German firm long EUR/USD could hedge by going short Dollar Index futures to offset potential losses from euro depreciation versus the dollar that hurts converted revenues. Use the index to macro hedge currency exposures.

Trading Around Key Events

The Dollar Index will often see significant breakouts, spikes, or trend shifts around major economic data releases or events like Fed policy decisions. Traders can trade these potential volatility spikes.

Place straddle or strangle options around the index price ahead of major events where you expect potential outsized index moves. Position for index breakouts with risk defined by the option structures ahead of events.

Combining with Risk Assets

Given its safe haven status, analyzing the Dollar Index alongside moves in risk assets such as global stocks helps assess broader market sentiment.

When the index rallies sharply while stocks fall, it often signals panic flight to safety in dollars. Use the index to gauge fear levels and whether investor psychology has reached extremes.

Key Levels to Watch

Like with technical analysis on individual currency pairs, following key support and resistance levels on the Dollar Index chart helps frame index trading.

Observe how the index behaves as it approaches major round number levels like 100, 110, 120 as well as previous swing highs and lows. These technical levels often become battlegrounds between bulls and bears.

Trading the Dollar Index Futures Contract

A major advantage the Dollar Index provides is the ability to trade it directly via the Dollar Index futures contract that tracks the level of the index. The index futures provide another means to speculate on or hedge broad dollar moves.

Dollar Index Futures Contract Specs

The Dollar Index futures contract trades on the ICE exchange with the following specifications:

  • Trading Symbol: DX
  • Contract Size: $1000 x Dollar Index value
  • Price Quotation: Index points (e.g. 100.50)
  • Settlement: Cash settlement based on exchange rate index
  • Contract Months: 16 months in trading cycle
  • Trading Hours: 23 hours, 5pm to 4pm Eastern

In addition to the standard futures, options are also available on the index giving traders additional tools to trade or hedge the index exposure.

Trading Strategies Using Dollar Index Futures

The futures provide straight exposure to gains or declines in the overall value of the U.S. dollar against the major currencies basket. Some trading strategies using the DX futures contract include:

Directional Trading: Buy DX futures to speculate on dollar strength or go short to bet on dollar weakness. The contract price will track the index moves tick-for-tick.

Pre-Release Positioning: Take positions in anticipation of Dollar Index moves around major events like GDP, NFPs, FOMC meetings.

Short-Term Trading: Use small time frames like the 5-min to day trade index futures off technical levels, momentum, or option hedging flows.

Options Strategies: Use DX options for directional bets or advanced strategies like straddles/strangles to trade volatility spikes.

Index Arbitrage: Trade the basis between Dollar Index futures and the spot USD currency pairs making up the index.

Dollar Index Futures Settlement

As cash-settled futures, the DX contracts do not involve physical delivery of an asset. At expiration, the contracts are cash settled against the final reference price of the index calculated based on the WM/Reuters spot FX rates taken at 4pm London time.

Settlement amounts are credited or debited from trader accounts based on the index price change since entering the futures position. The cash payout will equal the full index point move times the $1000 contract multiplier.

Trading Hours and Volume Analysis

The extended 23-hour trading day for Dollar Index futures spanning the weekdays enables traders to react to spot FX moves impacting the index in real-time. Highest trading volume typically occurs around the London/Europe and New York session overlaps when spot currency markets are most active.

Lower liquidity and wider spreads tend to occur overnight and around weekends. Traders optimize execution by trading during peak FX market hours when underlying index volatility is highest.

Advantages and Disadvantages of Trading the Dollar Index

Let’s summarize some of the notable pros and cons around utilizing the Dollar Index compared to just trading the individual USD currency pairs:

Key Advantages

  • Consolidates dollar strength vs four major currencies into single benchmark
  • Can trade index directionally in futures or options markets
  • Useful gauge of broad USD trends and market sentiment
  • Index divergence can signal overextended USD pairs
  • Effective hedge for broad dollar exposure related to international assets

Potential Disadvantages

  • Only represents dollar performance vs four currencies, not comprehensive measure of USD
  • Heavily Euro-centric with 57% weight, limiting breadth
  • Can occasionally diverge from underlying USD pair moves
  • Futures trading requires managing rollover and basis between spot FX and futures
  • Less direct control over currency exposures versus trading actual FX pairs

Overall, the Dollar Index serves as a valuable macro barometer for the U.S. dollar against its major currency counterparts. It distills dollar performance into an easy-to-analyze indicator of greenback strength. When applied and traded judiciously in tandem with individual pairs, the index provides helpful context and opportunities for savvy FX traders. Monitoring the Dollar Index should be part of every currency trader’s toolkit.


In summary, the Dow Jones FXCM Dollar Index provides forex traders with a tradeable, real-time benchmark for tracking broad U.S. dollar performance against a basket of four major currencies. The index consolidates dollar strength versus the euro, yen, pound, and Aussie dollar into a single measure through a weighted formula.

The index serves several utilities from gauging USD trends and sentiment to identifying trading opportunities around divergences. It also functions as an effective hedging tool through the available Dollar Index futures contracts.

Traders can apply the index in many useful ways from a simple directional signal for USD pairs to constructing advanced hedging strategies using the futures and options. Analyzing the drivers behind index moves also provides insights into major macro trends impacting FX markets.

While not a comprehensive measure of the dollar’s value, the transparency, tradeability, and analytical insights from the Dollar Index make it a valuable addition to every foreign exchange trader’s toolbox.