# Currency index

The currency index represents the evolution of a currency relative to the entire forex. The index is the average of one currency compared to others. The chart representation makes it easy to view trends by currency.

The currency index represents the change in one currency by reference to all other foreign currencies. The index is calculated by taking the average of the variations in one currency by reference to the others. Represented in graphical form, it allows for easy visualization of the individual trends in each currency.

## For what purpose?

### To filter the trending pairs of currencies.

A pair of currencies is trending when the value of one of the two currencies increases by reference to the other. Let us take the example of the Euro Dollar (EURUSD); if the EURUSD goes up, that signifies that the Euro is appreciating by reference to the Dollar. However, we do not have any information concerning the changes in the Dollar or the Euro, taken independently.
The Euro Dollar may rise:

• if the Dollar falls and the Euro rises
• or if the Dollar falls and the Euro stagnates
• or if the Euro rises and the Dollar stagnates
• or even if the Euro rises and the Dollar rises less strongly

The result of each of these configurations is a rise in the EURUSD. Now the most interesting trend will be when the Euro and the Dollar are in opposing trends because, in this case, the movement of the currency pair will be created by the combined variation of the two currencies.

## How is it calculated?

The index of the currencies is a simple arithmetic average of the variation in each pair. For each index, we have fixed the value 100 on 1 January 2000.
Let us calculate the dollar index (USD) at 1 January 2014.

Currency pair

Value at 1 January 2000

Value at 1 January 2014

Variation

USDEUR *

0.9930

0.7665

-26.84%

USDCHF

1.5902

0.8915

-43.94%

USDGBP *

0.6182

0.6031

-2.44%

USDJPY

102.21

105.32

3.04%

USDAUD *

1.5237

1.1241

26.23%

1.4455

1.0647

26.34%

USDNZD *

1.9113

1.2182

36.27%

Moyenne

-22.72%

* Note that certain parities are reversed by reference to what is usually used. For example, we take the rate of the USDEUR instead of EURUSD.

The average of the variations is -22.72%. The USD index at 1 January 2014 is therefore 100 - 22.72% = 77.28