How to find strong currencies and weak currencies?

How to find strong and weak currencies?

The uniqueness of currency pair trading is that it combines the value of two currencies, one of which is reflected in the other. For example, the USDJPY currency pair reflects the value relationship between the US dollar and the Japanese yen, while EURUSD represents the value comparison between the euro and the US dollar.

By opening a position, we predict that one currency will appreciate or another currency will depreciate. However, predicting one currency to appreciate does not mean that another currency will inevitably depreciate. Taking EURUSD as an example, when we establish a long position, we predict that the euro will appreciate, but this does not mean that the US dollar will depreciate certainly relative to other currencies. Similarly, predicting a depreciation of the US dollar is not the same as the euro’s appreciation for all other currencies.

The strength of a single currency is affected by multiple factors, but it is not accurate to directly judge its strength from a currency pair. Although investors can currently use currency indices to assess the strength of a single currency, which covers all major currencies, these indices are not available on the trading platforms of mainstream brokers.

To determine the current strength or weakness of a particular currency, we can adopt two methods. One approach is to use a heat map, which visually shows the relative strength between individual currencies, or the relative performance of different currency pairs over different time periods. Another approach is to compare multiple currency pairs that contain a specific currency and judge the current market position of the currency based on this. By comprehensively analyzing the trends of these currency pairs, we can more accurately grasp the strength and weakness of a single currency.