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Aussie Pairs

  • #2,221
  • May 8, 2008 12:45am May 8, 2008 12:45am
Quote
But it seems that AUDJPY's movement is naturally heavily interlinked with movements in USDJPY and AUDUSD - pelase correct me if I am wrong on this point.

Of course they are. As you pointed out the cross-pair price is basically the multiple of the 2. Ie: current price of the AUDJPY is 98.00, USDJPY is 104.33 and AUDUSD is .9394.

So:
104.33 *. 9394 = 98.007

This is why we look to pair weakness with strength, so the net result is either weak*weak or strong*strong.

If the JPY gets stronger then the USDJPY will likely drop. If the USD gets weaker then the AUD must stay stronger, if it gets stronger then the JPY must stay weaker. If that is broken then the pair will drop.

Obviously the common link between the 2 is the USD, as you've noticed the USD can play a tremendous role (it and the euro both do, but the USD is more active right now. A weak euro will have a similar effect tho, watch for it.). Think it's a coincidence that the USD's reversal to the euro corresponds to a trend change across so many other pairs?
  • #2,222
  • May 8, 2008 12:55am May 8, 2008 12:55am
Hi Clouds,

Thanks for reply :-).

I found my original post not too clear, so I will elaborate it here.

I am bullish on AUD. Hence, I though of trading AUDJPY for following reasons:
- Better swap interest compared to other AUD pairs such as AUDUSD.
- More importantly, looking at the charts, it seems AUDJPY has more room to move (its current price is around 98.10-98.20 as I typed this message) compared to its high of around 107.80 in Oct 07. In contrast, AUDUSD seems to be near a historical high, and 0.9500 a stubborn barrier.

At first I thought that by trading only AUDJPY, I would effectively remove the effect of USD on my trades. Unfortunately, I have realised I may be mistaken in my belief. This is because although USD is not explicitly present in AUDJPY, USD's movement still dictates movement of AUDJPY.

If USD strengthens against all currencies, then USDJPY rises and AUDUSD drops. Two possibilities:
- If USDJPY rises more than the drop of AUDUSD (in percentage terms), then AUDJPY will rise, by this rise is limited by the drop in AUDUSD.
- If USDJPY rises less than the drop of AUDUSD (in percentage terms), then AUDJPY will drop, even though Australia's economy may be doing well against Japan.

If USD depreciates against all currencies, then USDJPY drops and AUDUSD rises. Once again, two possibilities:
- If USDJPY drops more than the rise of AUDUSD (in percentage terms), then AUDJPY will drop, by this rise is limited by the drop in USDJPY.
- If USDJPY drops less than the rise of AUDUSD (in percentage terms), then AUDJPY will rise.

In either case, AUDJPY rise is (implicitly) dicated (and limited) by USD. Is this actually the case for all "non-major" curreicnies, i.e. their movements are dictated by the majors such as USD, GBP. EUR, CHF and JPY? If this is true, then does it mean that if i am bullish on AUD then I am better off trading AUDUSD directly instead of trading AUDJPY?

Mmm... I hope this latest post has clarified my earlier post :-).

Regards.
  • #2,223
  • May 8, 2008 1:00am May 8, 2008 1:00am
Quoting blueskies
Hi Clouds,

Thanks for reply :-).

I found my original post not too clear, so I will elaborate it here.

I am bullish on AUD. Hence, I though of trading AUDJPY for following reasons:
- Better swap interest compared to other AUD pairs such as AUDUSD.
- More importantly, looking at the charts, it seems AUDJPY has more room to move (its current price is around 98.10-98.20 as I typed this message) compared to its high of around 107.80 in Oct 07. In contrast, AUDUSD seems to be near a historical high, and 0.9500 a stubborn barrier.

At first I thought that by trading only AUDJPY, I would effectively remove the effect of USD on my trades. Unfortunately, I have realised I may be mistaken in my belief. This is because although USD is not explicitly present in AUDJPY, USD's movement still dictates movement of AUDJPY.

If USD strengthens against all currencies, then USDJPY rises and AUDUSD drops. Two possibilities:
- If USDJPY rises more than the drop of AUDUSD (in percentage terms), then AUDJPY will rise, by this rise is limited by the drop in AUDUSD.
- If USDJPY rises less than the drop of AUDUSD (in percentage terms), then AUDJPY will drop, even though Australia's economy may be doing well against Japan.

If USD depreciates against all currencies, then USDJPY drops and AUDUSD rises. Once again, two possibilities:
- If USDJPY drops more than the rise of AUDUSD (in percentage terms), then AUDJPY will drop, by this rise is limited by the drop in USDJPY.
- If USDJPY drops less than the rise of AUDUSD (in percentage terms), then AUDJPY will rise.

In either case, AUDJPY rise is (implicitly) dicated (and limited) by USD. Is this actually the case for all "non-major" curreicnies, i.e. their movements are dictated by the majors such as USD, GBP. EUR, CHF and JPY? If this is true, then does it mean that if i am bullish on AUD then I am better off trading AUDUSD directly instead of trading AUDJPY?

Mmm... I hope this latest post has clarified my earlier post :-).

Regards.
If stocks & gold are up, so will AUD/JPY, JPY crosses are up when the stock market is up, no real correlation between buying/selling dolllars.
  • #2,224
  • May 8, 2008 1:13am May 8, 2008 1:13am
Hi, thanks for advice :-).

Quoting Rabid
This is why we look to pair weakness with strength, so the net result is either weak*weak or strong*strong.
To confirm that I have understood the concept correctly, do you mean that if I want to trade AUDJPY, then I should go Long when both AUDUSD and USDJPY are rising, or go Short when both AUDUSD and USDJPY are dropping?
But this is the dificulty that I am encountering: A strengthening/weakening of USD will cause the 2 pairs to move in opposite directions and the end result is that AUDJPY's rise is limited.

Quoting Rabid
If the JPY gets stronger then the USDJPY will likely drop. If the USD gets weaker then the AUD must stay stronger, if it gets stronger then the JPY must stay weaker. If that is broken then the pair will drop.
Sorry, i am not too sure what you meant by this. Hope you could advise. Thanks!

Regards.
  • #2,225
  • May 8, 2008 1:51am May 8, 2008 1:51am
Quote
To confirm that I have understood the concept correctly, do you mean that if I want to trade AUDJPY, then I should go Long when both AUDUSD and USDJPY are rising, or go Short when both AUDUSD and USDJPY are dropping?
Careful there, I'm not suggesting that you go long or short or anything. I trade the trends, but even that requires a lot more consideration.

The pairing is when the Aussie is showing strength and the JPY is showing weakness. The USD pairs can help you read this. An up USDJPY does not mean that the JPY is getting stronger, it indicates that either the USD is getting stronger or the JPY is getting weaker... a strong trend up tends to indicate both. So when both base pairs are strongly trending to a strength/weakness pairing (in this case both up or both down) you'll usually get the best results on cross-pairs.

In other words the result of the cross pair is the cross result of the 2 pairs. The AUDUSD could go down as long as the USDJPY goes up enough to compensate, and vice-versa. If one consolidates (which is what the AUDUSD looks like it's doing) then the other (USDJPY) would need to strongly trend up to make the AJ rise (and vice-versa).

If AUDUSD starts a sharp downtrend while the USDJPY starts a sharp uptrend then the net AUDJPY could be either, but it'll certainly be unpredictable and probably consolidate wildly. Take a look at the GBPJPY. We've seen GBP weakness with JPY weakness, or GBP strength with JPY strength, and the end result is long periods of consolidation interspersed with sudden bursts of trend.

That's why I said earlier if the AUDUSD takes off like a rocket the pair will rocket too, the USDJPY is still trending up. On the other hand the AJ could be overextended (look at the AJ trend line, there's a horizontal resistance near where it's currently trading), if the USDJPY reverses at it's trendline and the AUDUSD reverses from this consolidation then the AJ will trend down and reverse... otherwise it's going to get choppy.

Quote
But this is the dificulty that I am encountering: A strengthening/weakening of USD will cause the 2 pairs to move in opposite directions and the end result is that AUDJPY's rise is limited.
The USD actually factors out since you're taking both a long and a short position. If the USD gets stronger by a tick then the AUDUSD will go down by a tick while the USDJPY will go up one. The net difference between the 2 is expressed as the cross pair.
  • #2,226
  • Edited 3:11am May 8, 2008 2:59am | Edited 3:11am
Thanks to Clouds and Rabid for being so helpful!

Quoting Rabid
Careful there, I'm not suggesting that you go long or short or anything. I trade the trends, but even that requires a lot more consideration.
I was giving an illustration trying to confirm I have understood the concept correctly. I knew you were not recommending anything :-).

Quoting Rabid
The pairing is when the Aussie is showing strength and the JPY is showing weakness. The USD pairs can help you read this. An up USDJPY does not mean that the JPY is getting stronger, it indicates that either the USD is getting stronger or the JPY is getting weaker... a strong trend up tends to indicate both. So when both base pairs are strongly trending to a strength/weakness pairing (in this case both up or both down) you'll usually get the best results on cross-pairs.

In other words the result of the cross pair is the cross result of the 2 pairs. The AUDUSD could go down as long as the USDJPY goes up enough to compensate, and vice-versa. If one consolidates (which is what the AUDUSD looks like it's doing) then the other (USDJPY) would need to strongly trend up to make the AJ rise (and vice-versa).

If AUDUSD starts a sharp downtrend while the USDJPY starts a sharp uptrend then the net AUDJPY could be either, but it'll certainly be unpredictable and probably consolidate wildly. Take a look at the GBPJPY. We've seen GBP weakness with JPY weakness, or GBP strength with JPY strength, and the end result is long periods of consolidation interspersed with sudden bursts of trend.

That's why I said earlier if the AUDUSD takes off like a rocket the pair will rocket too, the USDJPY is still trending up. On the other hand the AJ could be overextended (look at the AJ trend line, there's a horizontal resistance near where it's currently trading), if the USDJPY reverses at it's trendline and the AUDUSD reverses from this consolidation then the AJ will trend down and reverse... otherwise it's going to get choppy.

The USD actually factors out since you're taking both a long and a short position. If the USD gets stronger by a tick then the AUDUSD will go down by a tick while the USDJPY will go up one. The net difference between the 2 is expressed as the cross pair.
I will attempt to summarise what Clouds and Rabid have written. Please correct me if I have misunderstood/misinterpreted anything:
Clouds:
- If gold is up, chances are so will AUDJPY.
- If stocks are up, chances are so will AUDJPY (and other JPY corsses).

Rabid:
- Best way to trade AUDJPY is to identify strong trends when AUD strengtens (AUDUSD rises) and JPY weakens (USDJPY falls) [for Long trade]; or when AUD weakens (AUDUSD falls) and JPY strengthens(USDJPY rises) [for Short trade].
- If we trade AUDJPY when both AUD and JPY strengthen (rise in AUDUSD and fall in USDJPY) or weaken (AUDUSD falls and USDJPY rises) then end result is probably a period of consolidation.

So far today USDJPY has fallen quite a fair bit (more than 100 pips) and AUDUSD is mostly flat, as a result AUDJPY has also fallen quite significantly.

Curious on you guys' view: Australia's economy is not doing too badly (high commodities prices, latest job data above expectations), and its interest rate is one of the highest. So why is AUDUSD not rising (showing AUD is strengthening against USD) when USD is apparently weakening against JPY?

If trading AUDJPY (because I am bullish on AUD) means constantly having to look out for the directions of two other currency pairs (USDJPY & AUDUSD) then isn't it simpler and less streesful to trade AUDUSD alone?

Regards.
  • #2,227
  • May 8, 2008 3:19am May 8, 2008 3:19am
I Short AJ 97.58
  • #2,228
  • May 8, 2008 3:26am May 8, 2008 3:26am
Hm, what is AJ doing, UP or down? Any opinion?
  • #2,229
  • May 8, 2008 4:28am May 8, 2008 4:28am
Oops, I meant long Aud/jpy looks good so far, any AUD traders here? Thread is kind of quiet.
  • #2,230
  • May 8, 2008 4:50am May 8, 2008 4:50am
Looking at a possible pinbar on the daily AJ chart
Patience + Humility + Study = Success
  • #2,231
  • May 8, 2008 4:55am May 8, 2008 4:55am
Quoting DutchTrader
Looking at a possible pinbar on the daily AJ chart
Hi. Im long from 97.75, the daily looks like a bounce off trend line, and bounce off SMA on daily.
  • #2,232
  • May 8, 2008 4:56am May 8, 2008 4:56am
Quoting Clouds
Im long from 97.75, the daily looks like a bounce off trend line, too
Sitting right on it actually
Patience + Humility + Study = Success
  • #2,233
  • May 8, 2008 4:57am May 8, 2008 4:57am
Quoting DutchTrader
Sitting right on it actually
Do you have Simple Moving Average on chart, on Daily , it looks like this 3rd time to get close to it.
  • #2,234
  • May 8, 2008 6:02am May 8, 2008 6:02am
As for the gold/au connection, AUD is often referred to as a "commodity currency" as the nation produces a lot of gold. In fact it's responsible, largely, for their current budget. But be careful with drawing too many connections there. Gold mines often hedge their supplies to lock in profits early, you can't really trade on it short-term. The best you can do is factor in the trend in gold using the weekly charts. Of course that can't take in account technical over-pricing.

As for stocks, you need to specify which stocks. The Nikkei 225 (N225) index is a decent correlation in bear markets, just as the DOW was a strong correlator w/ the USD.

Now I am NOT giving an opinion of long on the AUDJPY. In fact at this exact moment I'm leaning slightly to short because of the situation in the AUDUSD (consolidation) and the way the USDJPY is behaving at the trendline. Right now AJ is bouncing off the 21EMA (plot it and see what I mean), but I don't count that as very reliable.

I also trade the daily and weekly charts, using the M15 and M30 for entries only. I don't intra-day trade, so none of this will matter squat on intra-day charts.

A lot will depend on how the AUDUSD behaves in this triangle, if it breaks up... AJ will probably go up, if it breaks down AJ will probably go whippy until the UJ figures out what's doing (it just broke below the last high, if the next high isn't an HH... watch out). The whole reason the AJ isn't dropping right now is because of the AU trendline, go to the AU, plot the triangle on the daily and see what I mean.

Quote
- Best way to trade AUDJPY is to identify strong trends when AUD strengtens (AUDUSD rises) and JPY weakens (USDJPY falls) [for Long trade]; or when AUD weakens (AUDUSD falls) and JPY strengthens(USDJPY rises) [for Short trade].

No, invert that. If the JPY weakens it means the USDJPY (the US dollar in respect to the yen) goes up.

USDJPY, USD->JPY. 1 US dollar -> X yen. As the number of yen goes up, the number of dollars required to buy 1 yen goes down. Which means the dollar is getting stronger in respect to the yen.

Or AUD->JPY where 1 AUD -> X (98.2 currently) yen.

If the AUDUSD rises it means the AUD strengthens. So basically when both pairs are going in the same direction that direction will be the prevailing direction in the AJ. If both are going up, it'll go up. If both are going down, it'll go down. It's when one goes up and the other goes down that you have to be careful.

Quote
If we trade AUDJPY when both AUD and JPY strengthen (rise in AUDUSD and fall in USDJPY) or weaken (AUDUSD falls and USDJPY rises) then end result is probably a period of consolidation.

Consolidation or an unpredictable bursty trend. They won't strengthen or weaken at the same pace probably, which means one will be naturally have to be stronger. But unless you plan to do a lengthy workup of their respective economies and keep daily tabs on their market indices (which you can do, some people specialize in all of that) you're going to have a hard time figuring out which will do which. See the GBPJPY for an example. Some people specialize in pairs like that, but it's not for trend traders.

Quote
If trading AUDJPY (because I am bullish on AUD) means constantly having to look out for the directions of two other currency pairs (USDJPY & AUDUSD) then isn't it simpler and less streesful to trade AUDUSD alone?

Laff, depends on your trading strategy. It might be tho. Of course the AUDUSD has it's own pairs you can do this with too... the EURUSD and the EURAUD. EURUSD/EURAUD = AUDUSD (within a few pips)...

Wrap your head around that for a bit and you'll realize that all pairs are inter-dependant on 2 reserve currencies, the EUR and the USD. That's why the whole "decoupling" thing is a farce.

As for the AU economy, there are probably a lot of reasons, I'd hate to guess... my economic guesses are almost always wrong. Tech analysis is so much easier.
  • #2,235
  • May 8, 2008 6:09am May 8, 2008 6:09am
Quoting Rabid
Now I am NOT giving an opinion of long on the AUDJPY. In fact at this exact moment I'm leaning slightly to short because of the situation in the AUDUSD (consolidation) and the way the USDJPY is behaving at the trendline. Right now AJ is bouncing off the 21EMA (plot it and see what I mean), but I don't count that as very reliable.
I look at Daily AJ, and it looked perfectly natural for it to come down to SMA. The next time it goes to SMA, I expect it to have gone up to 105-6ish and hit SMA at 102 or so. Just my opinion.
  • #2,236
  • May 8, 2008 6:15am May 8, 2008 6:15am
Quoting Clouds
I look at Daily AJ, and it looked perfectly natural for it to come down to SMA. The next time it goes to SMA, I expect it to have gone up to 105-6ish and hit SMA at 102 or so. Just my opinion.
Its been capped under a trendline off the double top
Patience + Humility + Study = Success
  • #2,237
  • May 8, 2008 6:16am May 8, 2008 6:16am
Quote
I look at Daily AJ, and it looked perfectly natural for it to come down to SMA. The next time it goes to SMA, I expect it to have gone up to 105-6ish and hit SMA at 102 or so. Just my opinion.
Nod, the EMA and the SMA touch at the same point right now. Take a look at the EMA tho and see how it matches the history. A lot of pairs do this, use the 21 as the "rest point." It's very possible that it'll bounce off, but also possible that it'll whip up to 99 then drop below in an H&S pattern (99 has a strong resistance from the previous 2 cycles) or a double-top.
  • #2,238
  • May 8, 2008 6:20am May 8, 2008 6:20am
Quoting DutchTrader
Its been capped under a trendline off the double top
Could you explain more? You mean that it's been at this level before, and fallen?
  • #2,239
  • May 8, 2008 6:23am May 8, 2008 6:23am
Quoting Clouds
Could you explain more? You mean that it's been at this level before, and fallen?
Its been unable to break that level for some time now.
Patience + Humility + Study = Success
  • #2,240
  • May 8, 2008 6:24am May 8, 2008 6:24am
Quoting Rabid
Nod, the EMA and the SMA touch at the same point right now. Take a look at the EMA tho and see how it matches the history. A lot of pairs do this, use the 21 as the "rest point." It's very possible that it'll bounce off, but also possible that it'll whip up to 99 then drop below in an H&S pattern (99 has a strong resistance from the previous 2 cycles) or a double-top.
Yeah, it's just that AUD/USD looks SOOOO bullish on monthly chart, and JPY crosses looks like making a come back..
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