USD Oscillator
Hi there!
Some of the readers will ask: “What about your indicators Mr. Toh?”
Well, This is one of them that I love it very much and used it in my daily trade. The OsUSD or the USD Oscillator!
Download MetaTrader version of OsUSD.zip
What’s the USD Oscillator?
The US dollar is traded against a lot of the currencies as a base currency or as a quote currency (ex: EURUSD, the EUR is the base currency and USD is the quote currency, the price represents how much of the quote currency is needed for you to get one unit of the base currency).
The correlation between the currencies that the USD is a part of them effects and is effected by the USD strength, for example if the USD failed against the JPY it’s likely to fail against the GBP, CHF and EUR.
The USD Oscillator is a visual aid to see what’s the position of the USD (USD strength or USD index) against the most important four currencies that the USD trade against; EURUSD, USDCHF, GBPUSD and USDJPY.
Table 1 shows the correlation level between those four currencies for the last 20 days (Calculated by CorCoef MetaTrader script - Raymond Toh - 2006).
|
- |
EURUSD | USDCHF | USDJPY | GBPUSD |
|---|---|---|---|---|
| EURUSD | - | -0.9756 | -0.0057 | 0.9172 |
| USDCHF | -0.9756 | - | 0.8949 | -0.9873 |
| USDJPY | -0.0057 | -0.9873 | - | -0.8995 |
| GBPUSD | 0.9172 | -0.9873 | -0.8995 | - |
This table (correlation) shows the moves similarity between pairs.
If the correlation is high (above 80) and positive then the currencies move in the same way.
If the correlation is high (above 80) and negative then the currencies move in the opposite way.
If the correlation is low (below 60) then the currencies don’t move in the same way.
Although the correlation between the EURUSD and USDJPY is low value which means they are not move the same way,
but the correlation with the other pairs against the USDJPY is a high value so we use the JPY in our calculation of USD strength. And another reasons that the USD failing or raising against JPY is a trigger of failing or raising against the other currencies.
How does the USD Oscillator calculating the USD strength?
The USD Oscillator uses a very basic formula to calculate the strength of the USD against the four Major currencies:
OsUSD[N] = (LWMA(EURUSD, PRICE_WEIGHTED,12,N+5) - LWMA(EURUSD, PRICE_WEIGHTED,12,N) * 10000) + (LWMA(GBPUSD, PRICE_WEIGHTED,12,N+5) - LWMA(GBPUSD, PRICE_WEIGHTED,12,N) * 10000) + ( LWMA(USDCHF, PRICE_WEIGHTED,12,N+5) - LWMA(USDCHF, PRICE_WEIGHTED,12,N) * 10000) + (LWMA(USDJPY, PRICE_WEIGHTED,12,N+5) - LWMA(USDJPY, PRICE_WEIGHTED,12,N) * 100)
Where:
N: The bar of calculation.
LWMA: Linear Weighted Moving Average.
PRICE_WEIGHTED: Weighted close price, (high+low+close+close)/4.
Note: We giving the USDJPY smaller weighted because it’s not correlated with the EURUSD and it’s 2 digits pair.
The above formula will produce an oscillator oscillate around the zero line as you see in Figure 1:
The Blue histogram lines below the the zero line indicates that USD is failing against the Majors and the Red histogram lines above the zero line indicates that USD is raising against the Majors
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