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How does USD affect EURJPY?

  • #1
  • First Post: Oct 20, 2006 12:31pm Oct 20, 2006 12:31pm
Hi,

I do not quite understand how movements in USD affect the EURJPY...

can someone please explain:

  1. how movements in USD affect EURJPY?
  2. what else will cause the EURJPY to go up?
  3. what else will cause the EURJPY to go down?

thanks.

  • #2
  • Edited 3:24pm Oct 20, 2006 12:50pm | Edited 3:24pm
Well, if for example if there was a rise in the EURUSD and a rise in the USDJPY, then the EURJPY would have to rise. For example if the EURUSD were at 1.2700 and the USDJPY were at 117.48, then the EURJPY would have to settle to EURUSD * USDJPY = EURJPY or 149.20.

So if these two pairs moved in the same direction, the EURJPY must move in the same direction.
Edit note: print in blue is a correction. As Vder pointed out in a later post, I reversed my direction on EJ here.

Quoting ycomp
Hi,

I do not quite understand how movements in USD affect the EURJPY...

can someone please explain:

  1. how movements in USD affect EURJPY?
  2. what else will cause the EURJPY to go up?
  3. what else will cause the EURJPY to go down?

thanks.

  • #3
  • Oct 20, 2006 1:00pm Oct 20, 2006 1:00pm
ok thanks, that much I understand... but what if the USDJPY is going lower and the EURUSD is going higher.

I guess this can mean that either the EURJPY goes up, or it stays put or it goes down?

If there is a strong pro-USD reaction then EURUSD goes down and USDJPY goes up. So what generally happens in this case?
  • #4
  • Oct 20, 2006 1:09pm Oct 20, 2006 1:09pm
There is no connection between the EURJPY in that case, because What you are saying is that the dollar is stronger, but there is no information in your statement whether the EUR is stronger or weaker against the JPY. You would also need to know something about one of these currencies as well to make a comparison. I suppose one could make an argument that the relative strength of the three economies could help in the determination, but that would be beyond the scope of your question, because that data would not be in the currency price alone.

Other than that, I am not sure what you are asking...


Quoting ycomp
ok thanks, that much I understand... but what if the USDJPY is going lower and the EURUSD is going higher.

I guess this can mean that either the EURJPY goes up, or it stays put or it goes down?

If there is a strong pro-USD reaction then EURUSD goes down and USDJPY goes up. So what generally happens in this case?
  • #5
  • Oct 20, 2006 1:14pm Oct 20, 2006 1:14pm
I was just wondering if the market (eurjpy) usually reacts more in one direction or another on pro-usd... (or negative usd). I was thinking that maybe the reaction in EUR or JPY might generally be stronger in one of those than the other.

But I guess from what you are saying that this is not the case, and it is pretty much random. thanks for the help.
  • #6
  • Oct 20, 2006 1:20pm Oct 20, 2006 1:20pm
No, that is not what I am saying. I am saying from the information contained in the dollar strength alone one cannot reach a reliable conclusion. One would not have a way of expecting a reasonable probability of knowing. I really do not know if it would be random.



Quoting ycomp
I was just wondering if the market (eurjpy) usually reacts more in one direction or another on pro-usd... (or negative usd). I was thinking that maybe the reaction in EUR or JPY might generally be stronger in one of those than the other.

But I guess from what you are saying that this is not the case, and it is pretty much random. thanks for the help.
  • #7
  • Oct 20, 2006 1:22pm Oct 20, 2006 1:22pm
This does bring up an interesting point though. If you have an occasion in which the EU and the UJ are going in the same direction, you then can trade the EJ with certainty, even if the tech analysis on the EJ is not clear.
  • #8
  • Oct 20, 2006 1:32pm Oct 20, 2006 1:32pm
And of course this is not limited to just this set.
There is GBPUSD,USDJPY, GBPJPY
EURUSD, USDCHF,EURCHF If you think about it the list is huge, then you can start looking at all the nondollar sets... If you know two, you must know the third, both actual price and direction.


Quoting smjones
This does bring up an interesting point though. If you have an occasion in which the EU and the UJ are going in the same direction, you then can trade the EJ with certainty, even if the tech analysis on the EJ is not clear.
  • #9
  • Oct 20, 2006 1:34pm Oct 20, 2006 1:34pm
my mistake, I did not mean to say "random" ... but I don't want to use the word "unpredictable" either.. because it is influenced by the other pairs. Still can't think of a good word to use.

I am only talking about after-the-fact (that the USD is already moving)
  • #10
  • Oct 20, 2006 1:35pm Oct 20, 2006 1:35pm
yea, I know what you mean.. I was hesitating, looking for the word too...LOL



Quoting ycomp
my mistake, I did not mean to say "random" ... but I don't want to use the word "unpredictable" either.. because it is influenced by the other pairs. Still can't think of a good word to use.
  • #11
  • Oct 20, 2006 1:36pm Oct 20, 2006 1:36pm
sounds like a great idea... lets make some software with color coded arrows and sell it for $5000 a pop on late night TV!

seriously though, sounds like something to put on my "todo list of things to look into"... uses of these correlations I mean.

Quoting smjones
And of course this is not limited to just this set.
There is GBPUSD,USDJPY, GBPJPY
EURUSD, USDCHF,EURCHF If you think about it the list is huge, then you can start looking at all the nondollar sets... If you know two, you must know the third, both actual price and direction.
  • #12
  • Oct 20, 2006 1:38pm Oct 20, 2006 1:38pm
Oh I am sure someone has beat us to it. LOL



Quoting ycomp
sounds like a great idea... lets make some software with color coded arrows and sell it for $5000 a pop on late night TV!

seriously though, sounds like something to put on my "todo list of things to look into"... uses of these correlations I mean.
  • #13
  • Oct 20, 2006 2:17pm Oct 20, 2006 2:17pm
Hi smjones, this is some interesting that you put forth.I am a little lost by the equation tho.

If both the EU and the UJ rise...then shouldn't the EJ rise as well?

say for example:

EU = 1, UJ = 1 then EJ = 1 (1x1=1 using your equation)

What happens when they both rise?

EU = 2, UJ = 2 then EJ = 4.

How does the EJ fall if the other two are on the rise?

thanks
  • #14
  • Oct 20, 2006 2:25pm Oct 20, 2006 2:25pm
Eu = 1.2624 ask
Uj = 118.68 ask
Ej = Eu*Uj = 149.82

If the Eu is up, the Euro is stronger than the dollar
If the UJ is up, the Dollar is stronger than the yen
so, if the Euro is stronger than the dollar and the dollar is stronger than the yen, then the Euro is stronger than the yen


Yes, I wrote it wrong to begin with, because I was thinking of a synthetic hedge. The concept is still the same though. In a synthetic hedge you would buy a EU and a UJ and short EJ for balance.

sorry for the confusion.
Quoting vder
Hi smjones, this is some interesting that you put forth.I am a little lost by the equation tho.

If both the EU and the UJ rise...then shouldn't the EJ rise as well?

say for example:

EU = 1, UJ = 1 then EJ = 1 (1x1=1 using your equation)

What happens when they both rise?

EU = 2, UJ = 2 then EJ = 4.

How does the EJ fall if the other two are on the rise?

thanks
  • #15
  • Oct 20, 2006 3:06pm Oct 20, 2006 3:06pm
so in a purely mathematical equation sense, does it work? I am still a little lost. I do not understand what a synthetic hedge is. Mathematically, if both the EU and the UJ rise...the EJ would rise would'nt it?
  • #16
  • Oct 20, 2006 3:09pm Oct 20, 2006 3:09pm
I think I was reading yesterday that the euro was being a bit affected by the EURJPY demand, so it goes both ways.
  • #17
  • Oct 20, 2006 3:12pm Oct 20, 2006 3:12pm
Yes, exactly. So if you want a balanced hedge, something like buy Eu and sell EU, If you buy Eu and Buy UJ, then at this point you are short the dollar in the Eu buy and you are long the dollar in the UJ buy, so these USDs cancel each other out. What you are left with is one long EJ. Now if you short EJ, you end up with One long EJ and one short EJ. Of course we are not considering spreads here or even why one would hedge in this way. but it is a perfect hedge of 1 to 1.




Quoting vder
so in a purely mathematical equation sense, does it work? I am still a little lost. I do not understand what a synthetic hedge is. Mathematically, if both the EU and the UJ rise...the EJ would rise would'nt it?
  • #18
  • Oct 20, 2006 3:13pm Oct 20, 2006 3:13pm
Well that would make sense, because the Euro is half of the EJ pair What effects EJ is going to effect both Euro and the yen.



Quoting ycomp
I think I was reading yesterday that the euro was being a bit affected by the EURJPY demand, so it goes both ways.
  • #19
  • Oct 20, 2006 3:57pm Oct 20, 2006 3:57pm
This may help understand the whole thing abot Cross Evaluation. The attached is an image of a zipped XL sheet I haven't used for a while. The Zip File is attached to the next post
Attached Image
  • #20
  • Oct 20, 2006 3:58pm Oct 20, 2006 3:58pm
Here is the Zipped XL book.
Attached File(s)
File Type: zip Calculated Cross Values.zip   19 KB | 593 downloads
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