For economists, it is often calculated as purchasing power,[1] while for financial traders, it can be described as an indicator, reflecting many factors related to the currency; for example, fundamental data, overall economic performance (stability) or interest rates.
If X/Y currency pair is up trend, it can be determined whether this happens due to X's strength or Y's weakness.
For the calculation of indexes of this kind, major currencies are usually used because they represent up to 90% of the whole forex market volume.
[6] In the minority of cases, fundamental based currency strength (also known as macro currency strength[7]) is calculated from aggregating various leading economic reports, including but not exclusive to: ISM Reports, Consumer Surveys (UMCSI),[8] Interest Rates, and much more.
With indicators like above, one is able to choose the most valuable pair to trade; see the reactions of each currency on moves in correlated instruments (for example CAD/OIL or AUD/GOLD);[9] look for a strong trend in one currency; and observe most of the forex market in one chart.