Unweighted Major Currency Average (UMCA)


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*  About our Unweighted Major Currency Average (UMCA) and its Use
Major World Currencies vs.
UMCA

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Unweighted Major Currency Average (UMCA)*  (UMCA & Relative Strength Updated 4/22/2017)



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Major World Currencies vs. UMCA 

How to use these charts: The charts below under measure the Relative Strength of the individual currencies represented in the index, both against the USD and against each other.  Consequently, a strong rise in Relative Strength (indicated by an uptrending chart) tends to indicate the currency is not only showing strength relative to the USD, it also tends to be doing the same against its peers.  A strongly downtrending chart implies the opposite.  






* About the Unweighted Major Currency Average (UMCA)
The UMCA is an unweighted average of five major world currencies traded against the US Dollar: the Euro (EURUSD), Japanese Yen (USDJPY), Great British Pound (GBPUSD), Canadian Dollar (USDCAD) and the Australian Dollar (AUDUSD).  These represent the most actively traded crosses against the USD in the forex market.  We calculate the UMCA as a harmonic mean of the currency values so that no one particular currency gains greater weight except on a pure performance basis relative to the USD.  The UMCA was created in April 2005.  

Why an unweighted average?  The most commonly used measures of USD strength are the Trade Weighted Indexes (TWEX) published by the U.S. Federal Reserve.  In this context, trade weighted refers to the performance of the USD with respect to international commerce.  The Major Trade Weighted Index (TWEXM) includes the five currencies mentioned above, along with the Swedish Kroner, and in creating and updating the index, the Federal Reserve applies a weighting scheme based on a measure of trade competitiveness with other countries in markets that are important to U.S. producers.  This weighting is applied to a geometric mean taken of the selected currencies.  As such, the Euro, now the common currency of 23 European nations, holds a 57.6% weight in the index, the largest of the group.  By comparison, the Swiss Franc holds the smallest, at 3.6%.  If you are familiar with the US Dollar Index (DXY) that is traded in the futures market, it is based on the same weighting scheme, and when you compare charts of Euro performance to that of the DXY, they almost appear to be inverted versions of each other.  The effect of trade weighting is the reason.  Since we look at this from the perspective of FX trading, we are more interested in market performance, and the effect of trade weighting tends to skew performance in favor of the Euro, while understating the performance of those currencies with less weight. The UMCA filters out the effect of trade weighting by generating an unweighted harmonic mean of actual currency pair performance in forex trading.  In that scheme, the playing field is more level. 

Currently, the UMCA and Relative Strength charts are updated and posted weekends.

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