Understanding the Power of USD Indicator.
The Power of USD indicator reveals the relative strength of the US Dollar compared to other currencies.
This handy tool calculates its value based on the closing prices of seven different currency pairs that include the USD.
Traders often use this indicator for mean reversion strategies, helping to identify potential market reversals.
Let’s consider the USD/JPY currency pair as our example, where USD is the base currency and JPY is the quote currency.
Start by placing the Power of USD indicator on your chart, followed by the Power of JPY.
You'll encounter two significant scenarios:
When the curves of the indicators are close to each other, it suggests a higher probability that the USD/JPY price will move UP.
However, remember to consider the overall market context—such as support and resistance levels—before making a decision.
When the indicator curves are far apart, it indicates a greater likelihood that the USD/JPY price will trend DOWN.
Again, it’s crucial to factor in the broader market situation, including support and resistance zones.
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