FOREX THEORY
How Cross Currency Pairs
Affect Dollar Pairs
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 cigar, you notice your friend who was
long USD/JPY made a lot more pips than you.
You’re like “What’s up with
that yo?”
You compare the charts of
EUR/USD and USD/JPY and see that USD/JPY made the bigger move. It broke through
a major technical resistance level and shot up 200 pips while EUR/USD barely
shot down 100 pips and failed to break a major support level.
You’re thinking to
yourself, “If the U.S. dollar was being bought across the board, then how come
my EUR/USD trade looks so weak compared to my friend’s USD/JPY trade?”
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