What it is
The US dollar index (DXY) tracks the dollar against a basket of six major currencies, led by the euro. Many markets are priced in dollars, so when the dollar strengthens they often fall and when it weakens they often rise. That link is not fixed: it strengthens, fades and sometimes flips.
This indicator shows the link as it is right now on your timeframe, so you can see whether the dollar is worth watching for your trade today rather than relying on a general rule.
How it is calculated
For each candle, take the change in your market from the previous close (as a log return) and the change in the dollar index over the same candle. Over the last 50 candles, work out the Pearson correlation of the two lists: their covariance divided by the product of their standard deviations. The result runs from -1 (always moved in opposite directions) through 0 (no consistent link) to +1 (always moved together). On WickSpeak the dollar's close for each of your candles is the last dollar price at or before that candle, and a value is only shown when enough of the 50 candles have data for both.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| length | 50 | 10 to 500 | How many candles the correlation is measured over. Shorter shows the link today and swings more; longer shows the steadier relationship. |
How to read it
How to trade it
- 1
On a 15 minute gold chart, check the reading first. If it is below -0.5, the dollar is a useful guide for this session.
- 2
Have your own gold trigger ready, such as a break and close above the previous hour's high. Take it when the dollar index is falling or breaking a support of its own, so both point the same way.
- 3
Keep the stop on the gold chart, below the breakout candle's low or 1 ATR below entry. For gold at 15 minutes that is often 4 to 8 points.
- 4
Target 2 times the stop. If the dollar turns and rallies hard while you are in the trade, consider taking profit early.
If the correlation rises above -0.3 the dollar link no longer supports the trade, and the trade then rests only on its gold level. A close back below the gold breakout level cancels it whatever the dollar is doing.
On WickSpeak, the dollar index correlation writes a plain-English reading on the live candle: how strong the link with the dollar is right now, what that means for the market in front of you, how to use it and what would prove it wrong. It fetches the dollar index for your chart's timeframe and lines it up candle by candle with your market.
Best markets and timeframes
Most useful on gold, US30, NAS100 and USD forex pairs, on 15 minute to daily charts where the dollar's moves are clear. On 1 minute charts small timing differences between markets make the reading noisy.
Common mistakes
- Assuming gold always moves opposite the dollar. The link changes; read it, do not assume it.
- Trading the dollar move alone with no trigger on your own chart.
- Treating correlation as cause. Both markets may be reacting to the same news.
Works well with
Questions traders ask
Is gold inversely correlated with the dollar?
It has usually moved opposite the dollar, because gold is priced in dollars and a weaker dollar makes it cheaper for other buyers. The link is not constant, though, and there have been long spells when both rose together. Check the current reading rather than relying on the rule.
What is a strong correlation?
Readings beyond 0.7 in either direction are usually called strong and 0.3 to 0.7 moderate. Below 0.3, the two markets are mostly moving on their own.
What is the DXY?
The US dollar index measures the dollar against six currencies: the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. The euro has by far the largest weight, so the DXY often moves opposite EURUSD.
Can I trade gold using the DXY?
You can use it as context. Take entries from levels and signals on the gold chart itself, and treat the dollar as a reason for more or less confidence. Keep the stop on the gold chart.