How Does the Euro Dollar Affect the Dollar Index?

Did you know that when a supply level is created on the EURUSD, a mirror-image demand level usually forms on the Dollar Index? Today we’re going deep into this hidden correlation that moves global Forex markets — and how ignoring it can cost you trades! Stay until the end, because you’ll see why patience and understanding imbalances are the real edge in trading. When a demand level is created on the EURUSD, a mirror-image supply level usually forms on the Dollar Index. Today we’re going deep into this hidden correlation that moves global Forex markets — and how ignoring it can cost you trades! Stay until the end, because you’ll see why patience and understanding imbalances are the real edge in trading.

The Hidden Relationship Between EURUSD and the Dollar Index

There’s a powerful inverse relationship between the EURUSD and the Dollar Index (DXY) — one that most traders completely overlook because they’re too focused on indicators or the news. When a demand level forms on EURUSD, a supply level is typically created on the DXY. It’s a mirror reflection, an echo across the Forex universe.

That’s because the Euro makes up almost 60% of the DXY’s composition, meaning when the euro strengthens, the dollar weakens — and vice versa.
However, we don’t trade based on fundamentals or macroeconomic data. We only trust price action and imbalances.

The Power of Opposite Imbalances

Let’s take a real example. Recently, the Dollar Index created a strong daily demand imbalance around 95.50, and at the exact same time, EURUSD printed a daily supply level near 1.1778.

This wasn’t random. These zones were born from institutional activity — large buy and sell orders that leave behind footprints in price. When those footprints align inversely across correlated assets, such as EURUSD and DXY, the probability of a strong reaction increases significantly.

When the DXY rallied from 95.50, EURUSD dropped from 1.1778 almost perfectly. That’s not magic — that’s pure supply and demand mechanics in action.

Why Were These Daily Imbalances Created?

Because of what’s happening on the bigger timeframes — the quarterly imbalances.
There’s a long-term quarterly supply level controlling the Euro, and a quarterly demand level in control of the Dollar Index.

That’s where the real story begins. The higher timeframe always has the final say. Daily or weekly setups only play out when the larger quarterly or monthly imbalances align.
That’s why ignoring higher timeframes is one of the biggest mistakes Forex traders make.

The power of these long-term imbalances is insane. They act like gravity. You can’t fight them — you can only trade with them.

The Domino Effect on USD Cross Pairs

Since the DXY is rallying, most USD cross pairs (like USDJPY, USDCHF, USDCAD) will also show new demand imbalances.

And that’s where our next opportunities come from. When the dollar strengthens from a strong demand zone, we experience a chain reaction of new buy setups across multiple pairs, providing us with more high-probability entries to trade with the institutional flow.

Patience — The Trader’s Superpower

This is where most traders fail. They want to chase every candle, every signal, every headline. But real trading is about waiting — like a sniper, not a machine gunner.

When you learn to wait for prices to return to these key demand or supply levels, you’ll start trading like institutions do — with calm confidence instead of emotional chaos.
Remember: your job isn’t to predict; it’s to prepare.

Final Thoughts about the Forex Correlation

The EURUSD and DXY correlation is one of the cleanest examples of supply and demand symmetry in the entire Forex market.
If you can master reading these mirror movements and align your trades with the higher timeframe imbalances, your probability curve shifts dramatically in your favour.

Forget about NFP, CPI, or interest rate speculation — those are distractions. The chart already tells you everything, weeks or even months before the news.

That’s the Set and Forget way.