Guide to the Most Popular Crosses

by RefcoFX

Trading currency crosses opens a whole new side of the currency markets, as different crosses possess different qualities that can suit any style of trading. Some crosses move fast and are extremely volatile with daily ranges that may exceed over 100 pips. While other crosses move relatively slow and exhibit low volatility, which is more suited for novice traders.

Another added dimension to trading crosses is the ability to collect substantial amounts of interest (i.e. GBP/JPY, NZD/JPY and other high yielding crosses) as the positive carry created by the interest rate differentials can add to a trader's bottom line P/L. Discover the world beyond the majors where traders can expand their trading horizons.

Actively traded 24-hours a day, the EUR/JPY is so popular that it has been called the fifth major! The EUR/JPY mostly trades in wide ranges, providing excellent opportunities for position (medium-term) traders.

EUR/JPY generally trades in a range, but when breakouts do happen, Fibonacci levels provide a good estimate of where support/resistance will probably occur. Stochastics are excellent for spotting exit and entry points in a rangebound market. Real support and resistance figures, published daily in the Market News & Charts section, can also be used to pick entry and exit points.

EUR/JPY is an excellent gauge for the health of the Japanesse economy versus the European economy. When data comes out that changes the prevailing outlook for either country, the result is usually a dramatic movement in the pair.

EUR/JPY Profile EUR/JPY is more sensitive to Japanese data than European data.

 

1. Average daily range: 112 pips
2. Wide long-term ranges
3. Good for medium-term traders

RefcoFX Analyst Says: This is an excellent cross for position traders. The moves are significant, and advantageous entry and exit points are easy to spot using technical analysis.

HOT Buttons: What moves EUR/JPY?

European and Japanese economic data This pair often integrates fundamental economic information better than the majors!

Bank of Japan intervention The BOJ prevents the Yen from becoming too strong against the dollar. If there is intervention in the USD/JPY, it will create movement for EUR/JPY too.

Oil prices Japan is very dependent on exported oil, so a spike in oil prices can cause a marked dip in the Yen.

Talk of Japanese reserve diversification The Bank of Japan holds dollar reserves. If reserves are diversified into euros, EUR/JPY could explode as new demand for the euro drives the price up!

Fundamentals to Watch

European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy.

European trade balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods.

European CPI Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.

ECB rate decision Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.

Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country.

Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.

BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.

Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.

Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.

Tankan Survey A quarterly business survey gives a detailed assessment of Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.

EUR/CHF has far surpassed USD/CHF bin terms in liquidity. EUR/CHF is probably one of the safest currencies pairs to trade because its moves are so orderly. It enjoys high volume, but trades in relatively predictable ranges since the Swiss and Euro zone economies are so closely linked.

Since EUR/CHF is primarily a range bound pair, traders can use real support and resistance (available in the Market News & Charts section) to find entry and exit points for their trades. Because the pair tends to range across all time frames, using support and resistance is an effective trading strategy for short and long term traders alike!

The pair moves independently only during times of geopolitical tension or risk, when there is an inflow of capital into the Swiss franc, a safe haven currency. Breakouts like this are temporary and generally last 1-2 months.

EUR/CHF Profile You can find action in EUR/CHF when USD/CHF liquidity dries up (2 PM EST until London open)

 

1. Average daily range: 55 pips
2. Low volatility and tight daily ranges with occasional breakouts
3. Good for: short and medium-term range trades

RefcoFX Analyst Says: A solid, reliable pair, EUR/CHF is perfect for range traders and busy people who can only look in on their trades once or twice a day!

HOT Buttons: What moves EUR/CHF?

Gold Since the Swiss franc is partly tied to the value of gold, movements in gold prices will be reflected in this pair.

Swiss Economic data Swiss economic data is reflected better in EUR/CHF than in USD/CHF.

Geopolitical Event Risks When there is geopolitical tension, buying in the Swiss franc increases since it is a “safe haven” currency, thus pushing the price up.

Fundamentals to Watch

Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale) that is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future.

Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland.

Comments from Swiss officials Watched for any indications of change in Swiss monetary policy.

Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy.

SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade.

European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy.

European Trade Balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods.

European CPI Consumer price index, a measure of inflation in Europe. Inflation that is too high or too low may prompt Europe's central bank to raise or lower interest rates.

ECB rate decision Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.

GBP/CHF experiences a high degree of volatility, and is perfect for traders who like to catch big moves in the market! It is the most popular carry trade in the FX market aside from GBP/JPY.

For a pair with high volatility like the GBP/CHF, Fibonacci lines are an excellent way to identify price levels to which the pair will retrace after a big move. Slow stochastics can also reveal potential reversal points – ideal places to enter and exit the market when it is not trending. This pair also tends to hesitate near its 100-day simple moving average.

The best time for active traders to trade GBP/CHF is when the US and European sessions overlap, from 8:00 AM EST to 11:00 AM EST; however, moves in this volatile pair can be substantial even intra-day.

GBP/CHF Profile GBP/CHF is very volatile- so set your stops wide!

 

1. Average daily range: 161 pips
2. Highly volatile with sweeping ranges
3. Good for: medium and long-term trades

RefcoFX Analyst Says: Personally my favorite pair, it trades wonderfully on technical indicators and makes dramatic (almost epic) moves! If you catch a move upward late in the game, the interest will ensure that you make up for it quickly.

HOT Buttons: What moves GBP/CHF?

Comments from the Bank of England Since GBP/CHF is a very popular carry trade, changes in the interest rate outlook can significantly affect the value.

UK inflation data The Bank of England tightens interest to control inflation, so the market watches inflation data to anticipate upcoming changes.

UK growth Growth in the UK is carefully monitored for any signs of a downturn or upturn. Growth can affect inflation, which in turn can affect interest rates.

Fundamentals to Watch

BoE Meeting Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair.

UK Unemployment Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK.

UK Retail Sales Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy.

UK Inflation Inflation is closely watched since it can affect Bank of England interest rate policy.

UK Housing Prices The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy.

Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale). It is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future.

Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland.

Comments from Swiss officials Watched for any indications of change in Swiss monetary policy.

Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy.

SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade.

Long the most popular carry trade in the market, high volatility in the GBP/JPY makes it an excellent medium-term range trade as well! Highly sensitive to interest rate outlook changes and change in the economy of the UK and Japan, the GBP/JPY can make powerful, sweeping moves.

Overall, the pair tends to trade in a range, especially when the UK interest rate outlook is neutral. Movements within these ranges are substantial. The RSI indicator and real support/resistance levels (available in the Market News & Charts section ) are two excellent ways for traders to identify entry and exit points at the tops and bottoms of these ranges.

With an average daily range of 172 pips, GBP/JPY offers plenty of opportunitties for traders of all time frames, whether in the short, medium or long-term!

GBP/JPY Profile GBP/JPY tends to be quiet during Japan's lunch hour: 10 PM to 11 PM EST.

 

1. Average daily range: 172 pips
2. Extended ranges; breakouts can be explosive
3. Good for: medium and long-term range trades; long term carry trades

RefcoFX Analyst Says: Personally my favorite pair, it trades wonderfully on technical indicators and makes dramatic (almost epic) moves! If you catch a move upward late in the game, the interest will ensure that you make up for it quickly.

HOT Buttons: What moves GBP/JPY?

Shifts in UK interest rate outlook Since this pair is saturated with carry trades, it is hypersensitive to any potential change in interest rates.

Bank of Japan intervention Hints that the BoJ will defend their currency from getting too strong will impact the price.

UK and Japanese economic data Changes in the strength of these economies relative to each other will have an effect on the price of their currency.

Fundamentals to Watch

BoE Meeting Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair.

UK Unemployment Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK.

UK Retail Sales Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy.

UK Inflation Inflation is closely watched since it can affect Bank of England interest rate policy.

UK Housing Prices The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy.

Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country.

Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.

BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.

Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.

Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.

Tankan Survey A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.

AUD/JPY provides opportunities for traders of all time frames, and offers opportunities to traders who love volatility as well as range trading. Because it is held as a carry trade, it is highly sensitive to interest rate outlook changes in both Australia and Japan.

When the Australian interest rate outlook is bullish, the pair tends to trend. When the outlook turns neutral, the pair consolidates into a range. During times of range trading, traders can use slow stochastics, and real support and resistance levels (available in the Market News & Charts section) to spot their entry and exit points.

AUD/JPY is actively traded during Asian banking hours, when Japanese and Australian banks are open. Since it is most active after US equity markets are closed, the AUD/JPY is an ideal pair for people who want to trade outside of US business hours.

AUD/JPY Profile AUD/JPY is a great pair to trade after US equity markets are closed!

 

1. Average daily range: 80 pips
2. Strong trends interspersed with periods of rangebound trading
3. Good for: trading in all time frames

RefcoFX Analyst Says: This is a great pair for people who want to catch short-term moves during evening hours in the US! When the pair is ranging, it is easy to pick entry and exit levels using support and resistance.

HOT Buttons: What moves AUD/JPY?

Gold Prices Since Australia exports gold, the value of the AUD is correlated with the price of gold.

Oil Prices The Japanese economy is very dependant on imported oil, so changes in the price of oil can affect the value of the Yen.

Australian Economic data AUD/JPY is very sensitive to Australian fundamental data.

Royal Bank of Australia and Bank of Japan Monetary Policy changes Since the AUD/JPY is a hot carry trade, changes in the interest rate outlook can cause sharp movements in the pair.

Fundamentals to Watch

Australian Employment Data Measure of employment in Australia. Employment is an important gauge of the health of an economy.

Australian GDP Gross Domestic Product. A measure of Australian economic growth. Steady, stable growth levels are ideal for developed nations.

Australian CPI Consumer Price Index. A measure of inflation in Australia. Too much or too little inflation could have implications for Australian monetary policy.

Australian Retail Sales A measure of health in the retail sector of the economy.

Australian Trade Balance Australia is a net exporter, meaning that Australia exports more goods than it imports. Changes in the trade balance can affect the price of Australia's currency.

RBA Rate Decision Royal Bank of Australia's decision on the interest rate level. Interest rate changes can have implications for the desirability of the AUDJPY as a carry trade.

Japanese Inflation A measure of inflation in Japan. Problematic when it is too low as this indicates little growth in the economy.

Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.

BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.

Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.

Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.

Tankan Survey A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.