Let’s pretend the Fed announces they will raise interest rates. The market quickly starts buying the U.S. dollar across all major currencies…EUR/USD and GBP/USD fall while USD/CHF and USD/JPY rise. You were short EUR/USD and were pleased to see price move in your favor making you some pips, but right before you were about to break out the…
Even if you don’t ever want to trade the currency crosses and simply stick to trading the majors, you can use crosses to help you make better forex trading decisions. Here’s an example… Currency crosses can provide clues about the relative strength of each major currency pair. Let’s say you see a buy signal for EUR/USD and GBP/USD but you can…
After the U.S. dollar, the euro and yen are the most traded currencies. And like the U.S. dollar, the euro and yen are also held as reserve currencies by different countries. So this makes the euro and yen crosses the most liquid outside of the U.S. dollar-based “majors.” Trading the Euro Crosses The most popular…
Sometimes institutional forex traders can’t trade certain currency crosses because they trade in such large sizes that there isn’t enough liquidity to execute their order. In order to execute their desired trade, they have to create a “synthetic pair“. How to Create a Synthetic Currency Pair Let’s say that an institutional forex trader wants to buy GBP/JPY…
If strong economic data comes out of Australia, you might want to look at buying the AUD. Your first reaction might be to buy AUD/USD. But what if at the same time, recent data also show the United States experiencing strong economic growth? The price action of AUD/USD may be flat. One option that you have is…
While the euro and yen crosses are the most liquid crosses, more currency crosses exist that don’t even include the U.S. dollar, euro, or the yen! We’ll call these the “Obscure Currency Crosses”! If we were in school – come to think of it, we actually are in school! – the major pairs would…
By selling currencies whose country has a lower interest rate against currencies whose country has a higher interest rate, you can profit from the interest rate differential (known as a carry trade) as well as price appreciation. That’s like being able to get a frosted cupcake with sprinkles on top! That talks to you! Imagine how delicious that…
Since a majority of the forex market will deal with the U.S. dollar, you can imagine that many of the news reports will cause U.S. dollar-based currency pairs to spike. The US has the largest economy in the world, and as a result, speculators react strongly to U.S. news reports, even if it doesn’t cause…
Over 80% of the transactions in the forex market involve the U.S. dollar. This is because the U.S. dollar is the reserve currency in the world. You may be asking yourself, “Why the U.S. dollar and not the sterling, or euro?” Most agricultural and commodities such as oil are priced in U.S. dollars. If a country needs to…
Back in the ancient days, if someone wanted to change currencies, they would first have to convert their currencies into U.S. dollars, and only then could they convert their dollars into the currency they desired. The U.S. dollar was known as a “vehicle currency” since the currency was used as the medium of exchange for…