Currency Strength Meter — Advanced Analysis of the Eight Majors

For three years Tomek traded mostly EUR/USD and GBP/USD, asking himself the same question every month: why does a well-read signal on one pair so often dissolve into nothing on the other? The answer arrived only when he opened a free currency strength meter. EUR hovered around 5.1, USD around 5.3 — EUR/USD had nowhere to go. AUD held 8.7, JPY sat at 2.1, and AUD/JPY produced in three hours what a week on EUR/USD could not. Below we break the advanced version of the tool into its working parts.

The eight majors and the logic of the ranking

The global currency market revolves around eight majors: USD, EUR, GBP, JPY, AUD, NZD, CAD and CHF. Everything else appears at a fraction of the size. The eight names yield twenty-eight unique cross-pairs, accounting for the bulk of daily turnover in the triennial Bank for International Settlements surveys. A strength meter takes the eight names and assigns each a single score describing its position relative to the other seven.

At the heart of the mechanism is the aggregation of cross-pairs. For each currency the tool computes seven percentage changes, normalises them, and averages them. Scales vary — 0 to 100, 0 to 10, sometimes standard deviations. The ranking is simple: highest is "strongest", lowest is "weakest". The two extreme positions matter most, because that is where the largest potential directional gap accumulates.

Where the single score actually comes from

Understanding the origin of the number is essential. It is the result of repeated averaging and normalisation, whose parameters differ between implementations. The tool collects seven percentage changes from the latest candle (for AUD: AUD/USD, AUD/JPY, AUD/EUR, AUD/GBP, AUD/CAD, AUD/CHF, AUD/NZD), rescales each, and averages them. The same runs for the other seven currencies.

Differences between implementations matter. Some weight cross-pairs by global-turnover share (triennial BIS data) — a move on AUD/USD has more impact on AUD than a move on AUD/NZD. Others treat every pair equally, reacting disproportionately to less liquid crosses. Free TradingView scripts often add an ATR normalisation so the score does not jump on major releases. Two meters side by side can show different rankings at the same moment — that matters more than half of the popular debates about which meter is "the best".

Strongest against weakest

The value of the meter concentrates in one pair: the strongest currency against the weakest. In a hypothetical reading AUD scores 8.5 and JPY scores 2.0 — a 6.5-point gap, more than half the ten-point scale. AUD/JPY has the strongest natural tendency to widen that gap. Trying EUR/USD at the same moment, with EUR at 5.2 and USD at 6.1, gives a 0.9 difference — roughly a fivefold smaller expected directional edge.

The practical threshold used by many day traders is at least 4.0 points on a 0 to 10 scale. Below that level, signals dissolve into noise. Above it, the strongest-against-weakest approach stabilises as a solid pair-selection filter — provided the trader adds a technical confirmation: a breakout, a moving-average crossover, or a candle close in the direction of the trade. The strength gap alone produces results barely better than random. The meter is a pair-selection filter, not an entry signal.

Intraday and daily — two different tools

The same meter on a different timeframe describes a reality following different rules. The intraday meter, on hourly or fifteen-minute candles, reacts quickly but is exposed to single releases. One Fed rate decision can flip USD from bottom to top inside fifteen minutes. The daily meter, on daily candles, is steadier and captures the multi-day backdrop.

A day trader checks D1 first for context, then switches to H1 for the entry. A swing trader does it the other way round. The richest situations occur when both intervals show the same extremes — AUD at the top on H1 and D1, JPY at the bottom on both. Combining the meter with multi-timeframe analysis is the natural extension of the method.

Strength rotation as an early signal

A concept rarely surfacing in popular articles but carrying decisive practical weight is strength rotation. It describes the moment when a currency holding the top of the ranking starts to lose its score while another, previously near the bottom, accelerates upward. Not a single-number change — a multi-position jump in a short window. Rotation leads classical technical indicators by two or three candles, because the score is an average of seven pairs.

Scenario: USD spends a week in the top two while GBP sits in sixth and seventh. On a Wednesday morning, USD drops to fifth and GBP jumps to second over four hours. The GBP/USD chart still looks sideways — the breakout signal appears hours later. The same phenomenon is visible in DXY dollar index data and in coverage of central-bank meetings, when a shift in Fed-ECB-BoJ rhetoric forces a re-ranking.

"Strength is best understood not in isolation but in relation to the other major currencies. The dollar is strong against the yen but weak against the euro — what matters is the ranking, not the absolute price." — Kathy Lien, Day Trading and Swing Trading the Currency Market, Wiley, 2016.

MACD-CSM — a filter for the sideways market

The classical MACD tracks the difference between two moving averages on price. MACD-CSM uses the same formula, parameters 12, 26 and 9, but the input is a currency's strength score, not price. The MACD line represents the difference between a short- and a long-term average on the strength axis; the signal line smooths it. A crossover means the same as in the original but relates to ranking position, not to a pair.

The practical advantage of MACD-CSM is most visible in ranging markets, where the price-based MACD generates a stream of false signals. In a EUR/USD consolidation the price oscillator can print three or four buy and as many sell signals in a session — all losing trades. MACD-CSM for EUR and USD shows far fewer twitches. The rule: take the classical MACD signal only when MACD-CSM on both currencies confirms direction. Otherwise skip the trade.

What to do tomorrow

Four limitations recur in every account. Sensitivity to the aggregation window — last hour reads differently from last twenty-four hours. Helplessness in sideways markets, where differences stay inside ordinary volatility. Relativity of the ranking, which always identifies a "strongest" currency even when that currency loses in absolute terms. And the absence of fundamental context: the tool has no idea the ECB meeting starts in an hour. Four steps for tomorrow morning follow below.

1. Install one free currency strength meter from TradingView or MT5, set it to the D1 timeframe, and watch the ranking for a full week without opening any position. Record in your journal which currency held first place and which held last place each day at the same hour. After five sessions, you will see how stable or volatile the extreme positions of the ranking are under your own conditions.
2. Set your minimum-difference threshold between the strongest and the weakest currency and write it into your trading plan. Most day traders use 4.0 points on a 0 to 10 scale; swing traders use 5.0. Below that line, ignore the signal completely — do not invent reasons to buy today because the setup "almost" qualifies. The threshold must be hard, or it stops being a threshold at all.
3. Add at least one technical confirmation to the meter's reading — a consolidation breakout, a moving-average crossover, a candlestick pattern, or a Fibonacci level. The ranking tells you which pair to look at, not when to enter. Without a second source, the result of the trade drifts toward random regardless of how neatly the strength ranking lines up.
4. Check the macroeconomic calendar before every entry that relies on the meter. If a CPI release, an NFP print, or a central-bank decision lands within the next two hours, the meter will say something different in a moment and all earlier assumptions become stale. Two minutes on the calendar and the discipline to say "not today" saves more capital than most indicators.

Related: multi-timeframe analysis — a natural complement to the meter across several timeframes; currency-pair correlations — complementary approach to pair selection. For broader framing see intermarket analysis on ForexMechanics.