Currency Strength Meter: How to Use It to Pick the Best Forex Pairs

A forex pair is always a contest between two currencies. When EUR/USD rises, it could be because the euro is strong, because the dollar is weak, or both. A currency strength meter separates the two, and that makes it much easier to find pairs that are trending cleanly.

How a strength meter works

The idea is simple: measure each major currency against all the others. If the euro is up against the dollar, the pound, the yen, the franc, the Australian, New Zealand and Canadian dollars, it is genuinely strong. If it is up against some and down against others, it has no real direction of its own.

A strength meter takes the price change of every pair over a chosen period, combines them for each currency and ranks the eight majors: USD, EUR, GBP, JPY, CHF, AUD, NZD and CAD. The result is usually a score on a scale such as 0 to 10.

The core strategy: strong against weak

The most common use is to pair the strongest currency against the weakest:

• If GBP is the strongest and JPY the weakest, GBP/JPY is a candidate to buy.
• If USD is the weakest and AUD the strongest, AUD/USD is a candidate to buy.

Trends in these pairs tend to be cleaner, because both sides of the pair are pushing in the same direction. Pairs made of two currencies in the middle of the table tend to chop sideways.

The strength meter is a filter, not an entry signal. Once you have a candidate, look at its chart for a good entry: a pullback to support in an uptrend, a break and retest, or a pattern you trust.

Choose the right timeframe

Strength can be measured over different periods:

• 1 hour: what is moving right now, useful for day traders.
• 4 hours to 1 day: the trend of the week, useful for swing traders.

The best setups are often when both agree, for example when the pound is strongest on the daily view and has just started to lead again on the hourly.

Combine it with sessions and news

Currencies are most active when their home markets are open. Yen and Aussie strength often shows in Asia, euro and pound strength in London, and dollar moves in New York. A sudden jump in one currency's strength often follows a data release or a central bank comment, so check the calendar to know whether the move has a reason behind it.

Common mistakes

• Chasing extremes. A currency that has been the strongest for days may be due for a pause. Look for pullbacks.
• Ignoring correlation. If the dollar is weakest, EUR/USD, GBP/USD and AUD/USD will all look good. Taking all three triples your bet against the dollar.
• Using only the meter. Strength tells you which pairs to watch, not where to enter or place your stop.

Currency strength in Alice

The Currency Strength tool in Alice ranks the eight major currencies on your chosen timeframe and suggests the strongest-versus-weakest pair with a buy or sell bias. On the same screen you can see which forex sessions are open and how volatile each one usually is.

Frequently asked questions

This guide is for education only and is not financial advice. Trading involves a high risk of loss. Test any method on a demo account first and never risk money you cannot afford to lose.