cross currency

I am trying to get a better understanding of the cross currencies. Some examples that i am looking at are the GBYJPY and EURCHF. Correct me if im wrong, GBPJPY= buying USDGBP and selling USDJPY and EURCHF= buying USDEUR and selling USDCHF. IF this is correct does this mean that if i buy GBPJPY i should make sure that my USDGBP is going up and that my USDJPY is going down?. OR if i am selling GBPJPY my USDJPY should be going down and USDGBP going up? Just for clarification suppose i am looking to long GBPJPY, but both cable and UJ are in an uptrend. should i still long or wait?

thanks for the help

It would probably help considerably if you quoted the pairs in the correct order.

GBP/USD: when pair is going up, GBP is strengthening at the expense of the dollar

USD/JPY: when pair is going up, USD is strengthening at the expense of the yen.

So to be long the GBP/JPY, you want the GBP strengthening against the JPY. An upwardly moving GBP/USD and USD/JPY will make that happen.

Let me approach this in a slightly different manner and add a couple of additional scenarios to hopefully increase understanding for nikim of what is happening with the interrelation of the 3 pairs. With GBP/USD, USD/JPY and GBP/JPY you have the following 3 core currencies in play:

GBP
USD
JPY

Think of it in terms of a ranking system: first place, second place and third place. In a 3-way comparison, one will be strongest, one second strongest and one weakest. If you are evaluating the GBP/JPY cross for a possible buy, it can go up if:

GBP is strongest, USD is second strongest and JPY is third strongest. The net result of this type of relative strength combination is for GBP/JPY to go up the most, GBP/USD to go up the second most and USD/JPY to go up the least in this 3 currency pairing. This is the best scenario for a rising GBP/JPY, meaining when both U/J and G/U are rising you will get the most rise out of G/J and up moves will tend to be straighter under this scenario than in other cases.

But there are a couple of other possible GBP/JPY rise scenarios as well:

If USD is strongest, then GBP then JPY you can still get a rising GBP/JPY but the strongest rising currency will be USD/JPY then GBP/USD declining, then GBP/JPY rising slightly. This scenario tends to lead to a very choppy market for GBP/JPY with lots of pullbacks. GBP/JPY will tend to follow the lead of USD/JPY.

If GBP is strongest, JPY is second strongest and USD is weakest you get a strong rising GBP/USD, then rising GBP/JPY and a declining USD/JPY. GBP/JPY will tend to follow the lead of GBP/USD.

Any scenario where JPY is the strongest of the 3 or where GBP is weaker than JPY will get a declining GBP/JPY and so playing that cross from the short side would lead to profits.

Here's an XL file that may assist you in determining where the price Should Be.

XL Cross Calculator

Oops, Sorry about the date in the File.
If you want to, you can change the contents of the cell to...

=Now()

and then it will show the Current Date & Time.

The zip XL File

Thanks FXEZ and DArkstar for the explanation, i understnad the cross currecny and how they move now. Much appreciated.


Bemac, im not totally understnading how to interpret that XL file. Could you provide me with a little more explanation as to how to analyze the file?

thanks and good trading everybody

For the Majors, if you type in the current Base Handle & Current Base Bid the Crosses will calculate accordingly.

{no need for Decimal Point on Base Bid} ,
[example] GBPUSD Base Handle = 1.95 Base Bid = 04, Repeat this for all the Majors and you should have an idea of the Market Cross Values.

hth. If not, please ask for further clarification.

Bemac,
I typed in the base currency for the majors and got the cross currecny prices. JUst wondering if the XL is supposed to do anything other than calculate the currecnt cross prices?

thanks

No. Not that version. It simply calculates the crosses.