A while back reader Alex pointed out an indicator he’s been using, the BOJ ERI, a Markit trade weighted indes ,Markit iBoxx FX, as a replacement, or at least a secondary monitor to the DXY.

He’s sent me several charts today so I can post up for you guys.

USD/JPY with DXY & BOJ ERI 11 09 2013

The USDJPY chart is very interesting because you can spot divergences by using BOJ index which are not visible not by using DXY. Look at the two peaks USDJPY made in May and then in June: DXY makes a higher high, suggesting a further bull run, while BOJ ERI (which is reversed because it shows JPY strength) makes an higher low… and the pair went down then

He’s also added SMA’s to the indicators, a 5 and 17 day SMA.

EUR/JPY DXY BOJ 11 09 2013

Look at EURJPY in example, it mirror tracks the currency and it can used as a confirmation of the currency behaviour, plus you can spot divergences as per RSI in example. The two SMAs are useful to spot a trend in the indicator. I spotted crosses between the SMAs by using a 5 days SMA as a signal for rounding the indicator (which can be too responsive at times)and a 17 days SMA as the main. When the signal (fast SMA) is below the main(slow SMA) JPY is below trend (weak) and crosses are up (strong), so you can go long.
Nothing different you can do with a currency and two SMAs though, hence the moderate utility of the indicator in an EA… An EA with, say a SMA, and an oscillator, say MACD, doesn’t behave better than the same EA with the
same two former parameters plus the cross of the indicator between the 5SMA and 17SMA.

It an interesting secondary view to the DXY and it seems to tighten up the correlation with DXY, especially in EUR/JPY.

Alex will be open to questions in the comments and we’ll be happy to hear any thoughts or similar indicators that people use. We’ve got a good community on here and sometimes it’s good to get people to knock heads together.

I will just add a disclaimer that the indicator has been made privately by Alex and any requests for its use should be directed to him and taken at your own risk. It is not a get rich quick scheme but one of many tools that people employ to get through the minefield that is Forex trading.