The Euro Currency Index (ECI) is one of the most widely used currency indices in the forex markets. It is measured as the arithmetic ratio of the four major global currencies to the euro: US dollar, sterling pound, Japanese yen and Swiss franc. All currencies are expressed in currency units per Euro. The index was launched in 2004 by the exchange portal Stooq.com. The base was equal to 100 points on January 4, 1971. Before the introduction of the single currency (1 January 1999) an exchange rate of 1 euro = 1.95583 Deutschmark was calculated.
The performance of the ECI is useful because the index measures the strength or weakness of the Euro against its major global competitors. When the value of the index increases it means that the euro is appreciating against its peers of the index basket, when it decreases it is depreciating. The ECI is well known to be correlated with major commodity indices. When the ECI increases, it is very likely that there is a downward trend in commodity prices. This applies especially to agricultural commodities and oil. The prices of precious metals (gold and silver) are also strongly correlated to the index.
The ECI is comparable to the effective exchange rate index published by the European Central Bank (ECB). However, the index calculated by the ECB measures the value of the Euro much more accurately than the ECI, since it includes the competitiveness of European goods compared to other countries and trading partners in the currency basket.