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2 Ways to Trade the US Dollar

2 Ways to Trade the US Dollar

Walker England, Forex Trading Instructor

Talking Points:

  • The USDollar Index is ranging post NFP
  • Traders have two ways to approach the USDollar
  • Based off of strength or weakness, traders can determine positions

Even after last week’s NFP (Non-Farm Payroll) event, the Dow Jones FXCM USDollar Index has continued trading in a sideways range. This has left many traders considering their options when it comes to trading Forex’s traditional major currency pairs, including the EURUSD. Today we will look at two ways to trade the USDollar Index, and how developing a trading strategy around the USDollar can translate into a trading bias on other traditional Forex majors.

So let’s find out how traders can approach the USDollar for this week’s trading. Let’s begin!

Learn Forex –USDollar Trading Range

2 Ways to Trade the US Dollar

(Created using FXCM’s Marketscope 2.0 charts)

Trade the Range

First, off when prices are ranging traders should consider trading the range! Traders looking to trade the underlying USDollar Index will look to buy range support in the event of US Dollar strength. Limit orders on new buy positions can look to take profit at resistance. Conversely if the range is set to continue, traders can replicate the process by selling resistance and taking profit as price moves toward support.

Traders can also use the range to their advantage when deciding how to approach traditional US Dollar based pairs. If traders are looking for a bounce of the USDollar Index this would signal underlying US Dollar strength. Knowing this, traders can sell pairs such as the EURUSD and GBPUSD. Conversely in the event that US Dollar weakens at resistance, traders can look to capitalize buy buying pairs such as the AUDUSD.

Learn Forex –EURUSD Trading Blocks

2 Ways to Trade the US Dollar

(Created using FXCM’s Marketscope 2.0 charts)

Trade a Breakout

The next way we can trade the USDollar Index is through the use of a breakout methodology. Traders looking to trade in this manner may do so through the use of entry orders. Traders will look to set entries above resistance to buy a breakout towards higher highs. As well, traders will likewise look to sell the market in the event that price moves through support.

Again, these moves will also correlate to the moves of the Forex majors. If the USDollar Index breaks out below support, this is an indication of US Dollar pairs gaining strength on US Dollar weakness. In the event of this scenario, traders could look to capitalize on buying the AUDUSD, GBPUSD. Conversely if the US Dollar Index breaks towards higher highs, this would symbolize US Dollar strength. Traders would then look to sell US dollar based pairs such as the EURUSD!

As you can see, the USDollar Index can be extremely helpful when planning a trading strategy. You can get started analyzing the index along with your favorite currency pairs such as the EURUSD with a Free Forex Demo with FXCM. This way you can develop your trading skills while tracking the market in real time!

---Written by Walker England, Trading Instructor

To contact Walker, email . Follow me on Twitter @WEnglandFX.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.