If you’ve traded stocks, you’re familiar with all the indices available such as the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000, S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, the last one is actually Harry Potter’s broomstick. Well if U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency traders like us, we have the U.S. Dollar Index (USDX).The U.S. Dollar Index consists of a geometric weighted average of a basket of foreign currencies against the dollar. Come again?! Okay before you fall asleep on us after that super geeky definition, let’s break it down. It’s very similar to how the stock indices work in that it provides a general indication of the value of a basket of securities. Of course, the “securities” we’re talking about here are other major world currencies. The BasketThe U.S. Dollar Index consists of six foreign currencies.
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