Forex Basics - Trading the crosses
Trading the JPY crosses
The JPY crosses constitute one of the primary cross families and basically pit the JPY against the other major currencies. EUR/JPY is the highest volume of the JPY crosses, but the prominence of the carry trade, where the low yielding JPY is sold and higher-yielding currencies are bought, has seen significant increases in GBP/JPY, AUD/JPY, and NZD/JPY trading volume. Those currencies offer the highest interest-rate differentials against the JPY.
JPY crosses have their pip values denominated in JPY, meaning profit and loss will accrue in JPY. The margin requigrement will vary greatly depending on which primary currency is involved, with GBP/JPY requiring the greatest margin and NZD/JPY requiring the least.
In terms of JPY-cross fundamentals, JPY-based news and events tend to have the greatest impact, but, trying to pin down which leg is going to cause the JPY crosses to move is a risky game. When trading in the JPY crosses, you need to keep an eye on USD/JPY in particular, due to its relatively explosive tendencies and its key place as an outlet for overall JPY buying or selling. Be alert for similar technical levels between USD/JPY and the JPY crosses, as a break in either could spill over into the other.
Trading the EUR crosses
Outside of EUR/JPY, EUR crosses action tends to be concetrated in EUR/GBP and EUR/CHF, where the cross direction is largely determined by changing outlooks between the Eurozone economy relative to the UK and Swiss economies. Reactions to Eurozone and Swiss news or data are most likely to be felt in the EUR crosses as opposed to EUR/USD or USD/CHF, whereas UK news / data is going to explode all over GBP/USD and EUR/GBP.
Sharp USD-driven moves will also affect these crosses, with the brunt of the USD move being felt in GBP/USD and USD/CHF, frequently biasing those legs to drive the EUR cross in the short run. That means frequently (but not always) that a sharp move higher in the USD will tend to see a higher EUR/CHF and EUR/GBP, while a rapid USD move lower will tend to see lower EUR/CHF and EUR/GBP.
The pip values of these EUR crosses will be denominated in either GBP or CHF, with GBP significantly more expensive on a pip basis than CHF. Typically daily ranges in the EUR crosses are relatively small on a pip basis, but they're still substantical on a pip-value basis and roughly equivalent to daily EUR/USD ranges.
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