I'm still trying to get my head around how directly DXY moves affect $EURUSD. Logically, a stronger dollar index should mean a weaker Euro against it, but sometimes I see divergence. Is it just the weighting of other currencies in DXY, or are there other factors I should be considering that might explain the occasional uncorrelated moves?
That's a great question, I've noticed the same thing with DXY and EUR/USD not always moving in lockstep. Is it possible that sometimes news from the Eurozone or US has a stronger, more direct impact on EUR/USD that temporarily overrides the broader DXY movements?
You're right to question it; while the EUR/USD is the largest component of DXY, its movements aren't always perfectly inversely correlated. Divergences often come from specific Eurozone news or policy that outweighs broader dollar strength, or when other DXY components are moving particularly strongly. Also consider interest rate differentials which can have a strong independent pull.