Complete Guide to Currency Strength Analysis
Master currency strength analysis for forex trading. Learn how strength meters work, interpret scores, identify divergence opportunities, and develop profitable trading strategies.
What is Currency Strength Analysis?
Currency strength analysis is a method of evaluating forex markets by measuring how strong or weak individual currencies are relative to each other. Instead of analyzing just one currency pair, strength analysis looks at a currency’s performance across ALL its major pairs simultaneously.
This approach provides a clearer picture of which currencies are truly strong or weak, helping traders identify high-probability trading opportunities.
Why Traditional Pair Analysis Falls Short
When you look at EUR/USD alone, you see:
- EUR/USD up 0.5%
But what does this mean? Is EUR strong? Or is USD weak?
Currency strength analysis answers this by checking EUR and USD against ALL other majors:
- EUR vs GBP, JPY, CHF, CAD, AUD, NZD
- USD vs EUR, GBP, JPY, CHF, CAD, AUD, NZD
Result: EUR strength +45, USD strength -35
Now you know EUR is strong AND USD is weak - a powerful combination for trading EUR/USD long.
How Currency Strength is Calculated
Our Currency Strength Meter calculates strength by analyzing all 27 major currency pairs in real-time.
The Calculation Process
- Collect current prices for all 27 pairs
- Collect historical prices based on your timeframe (1H, 4H, 1D, 1W, 1M)
- Calculate percentage change for each pair
- Isolate each currency’s performance across its 7 pairs
- Average the results to get a single strength score
Example: Calculating USD Strength
| Pair | Change | USD Impact |
|---|---|---|
| EUR/USD | -0.50% | USD +0.50% |
| GBP/USD | -0.30% | USD +0.30% |
| USD/JPY | +0.80% | USD +0.80% |
| USD/CHF | +0.40% | USD +0.40% |
| USD/CAD | +0.20% | USD +0.20% |
| AUD/USD | -0.60% | USD +0.60% |
| NZD/USD | -0.40% | USD +0.40% |
Average USD performance: +0.46%
This is then normalized to a -100 to +100 scale for easy comparison.
Understanding the Strength Meter
Reading the Display
Each currency shows:
- Rank (1-8): Position from strongest to weakest
- Currency code: USD, EUR, GBP, JPY, CHF, CAD, AUD, NZD
- Strength score: -100 to +100
- Visual bar: Green (strong), red (weak), yellow (neutral)
Interpreting Scores
| Score Range | Meaning | Trading Implication |
|---|---|---|
| +50 to +100 | Very strong | Actively BUY this currency |
| +20 to +50 | Moderately strong | Mild buy bias |
| -20 to +20 | Neutral | Avoid or wait |
| -50 to -20 | Moderately weak | Mild sell bias |
| -100 to -50 | Very weak | Actively SELL this currency |
The Strength Matrix
The heatmap matrix shows all 27 pairs at once:
- Green cells: Pair rising (base currency stronger)
- Red cells: Pair falling (quote currency stronger)
- Color intensity: Deeper = larger move
This lets you quickly scan all markets for the biggest moves.
Finding Trading Opportunities
The Divergence Strategy
The most powerful use of currency strength is divergence trading:
- Find the strongest currency (highest positive score)
- Find the weakest currency (lowest negative score)
- Calculate the divergence (gap between scores)
- Trade the pair combining these currencies
Example Trade Setup
Meter readings:
- EUR: +55 (Rank #1 - Strongest)
- JPY: -48 (Rank #8 - Weakest)
- Divergence: 103 points
Trade: BUY EUR/JPY (buy strong EUR, sell weak JPY)
Why this works:
- EUR is genuinely strong (not just vs one currency)
- JPY is genuinely weak (not just vs one currency)
- The divergence creates momentum in your direction
Divergence Thresholds
| Divergence | Signal Quality | Recommendation |
|---|---|---|
| 0-30 points | Weak | No trade |
| 30-50 points | Moderate | Consider with caution |
| 50-80 points | Good | High probability setup |
| 80+ points | Excellent | Strongest signals |
Multi-Timeframe Analysis
Currency strength varies across timeframes. A currency might be strong on the 1-hour chart but weak on the daily chart.
Timeframe Alignment
The most reliable trades occur when strength aligns across multiple timeframes:
| Monthly | Weekly | Daily | 4H | 1H | Signal |
|---|---|---|---|---|---|
| USD Strong | USD Strong | USD Strong | USD Strong | USD Strong | Very bullish USD |
| USD Strong | USD Strong | USD Strong | USD Weak | USD Weak | Pullback in uptrend |
| USD Strong | USD Weak | USD Weak | USD Weak | USD Weak | Potential reversal |
The Top-Down Approach
- Start with higher timeframes (Daily/Weekly) for bias
- Confirm with medium timeframes (4H) for trend
- Use lower timeframes (1H) for entry timing
Example:
- Daily: EUR strong (+55), USD weak (-40)
- 4H: EUR strong (+45), USD weak (-35)
- 1H: EUR moderate (+25), USD weak (-30)
Analysis: Strong EUR uptrend across all timeframes. The 1H shows some consolidation but overall bias is clear. Look for entries on EUR/USD long.
Using the Trading Opportunities Section
Our meter automatically identifies the top trading opportunities based on:
- Divergence score - Gap between strongest/weakest
- Confidence level - HIGH/MEDIUM/LOW based on divergence
- Entry price - Current market price
- Stop loss - Suggested protective level
- Take profit - Target levels (TP1 and TP2)
Understanding Confidence Levels
- HIGH: Divergence > 50 points, clear directional bias
- MEDIUM: Divergence 30-50 points, moderate setup
- LOW: Divergence < 30 points, weaker signal
Risk Management
Always:
- Use the suggested stop loss
- Start with TP1 for safer profits
- Consider TP2 when divergence is high
- Never risk more than 1-2% per trade
Common Mistakes to Avoid
Mistake 1: Trading Neutral Currencies
When both currencies show scores between -20 and +20, there’s no clear strength differential. These trades are essentially coin flips.
Solution: Wait for divergence > 30 points minimum.
Mistake 2: Ignoring Timeframe Conflicts
A currency strong on 1H but weak on 1D is likely in a counter-trend move. Trading against the higher timeframe trend is risky.
Solution: Align at least 2-3 timeframes before trading.
Mistake 3: Fighting Strong Trends
If a currency shows +80 strength across all timeframes, don’t try to short it looking for reversals.
Solution: Trade WITH strength, not against it.
Mistake 4: Over-Trading Low Divergence
Small divergences (20-30 points) don’t offer enough edge to overcome spreads and uncertainty.
Solution: Be patient. Wait for 50+ point divergence for best results.
Mistake 5: Ignoring the Fundamentals
Extreme strength readings often occur during major news events. Strength can reverse quickly after the event.
Solution: Be aware of economic calendar events. Consider reducing position size around news.
Advanced Techniques
Strength Momentum
Watch how strength changes over time:
- Rising strength: Currency gaining momentum
- Falling strength: Currency losing momentum
- Flat strength: Consolidation
A currency going from +20 to +50 shows building momentum - more reliable than one staying at +50.
Correlation Confirmation
Use correlation to confirm:
- EUR/USD and GBP/USD often move together
- USD/JPY and USD/CHF often move together
- AUD/USD and NZD/USD are highly correlated
If EUR strength is rising but GBP strength is falling, question the EUR signal.
Session Timing
Currency strength varies by trading session:
- Asian session: JPY, AUD, NZD most active
- London session: EUR, GBP, CHF most active
- New York session: USD, CAD most active
Trade currencies during their active sessions for better signals.
Putting It All Together
Pre-Trade Checklist
Before every trade, confirm:
- ✓ Divergence > 50 points?
- ✓ Multiple timeframes align?
- ✓ No major news events imminent?
- ✓ Stop loss and take profit set?
- ✓ Risk is 1-2% max?
Sample Trading Routine
- Open the meter at session start
- Check higher timeframe (Daily) for bias
- Switch to trading timeframe (4H or 1H)
- Identify strongest/weakest currencies
- Calculate divergence
- If divergence > 50, evaluate the opportunity
- Set stop loss below recent support/resistance
- Enter trade and manage with the meter
Next Steps
You now understand how currency strength analysis works. Here’s how to continue:
Practice
- Open our strength meter
- Watch how strength changes throughout the day
- Paper trade based on divergence signals
- Track your results
Learn More
- What is Currency Strength? - Quick definition
- EUR/USD Analysis - Apply to specific pairs
- All Currency Pairs - Full pair directory
Get Started
The Currency Strength Meter updates every 15 seconds with real-time data. Open it now and start identifying opportunities.