What happens when both currencies in a pair crash? | Forex Factory

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What happens when both currencies in a pair crash?

  • #1
  • First Post: Mar 26, 2012 6:27pm Mar 26, 2012 6:27pm
Hi,

I was wondering what would happen to an exchange rate if both the U.S. Dollar and Euro were to experience a big loss in value beginning at about the same time.

Would the exchange rate remain relatively steady because both currencies are losing value simultaneously?

Thanks,

Jeff
  • #2
  • Mar 27, 2012 1:29am Mar 27, 2012 1:29am
Quoting jmbtexas
Hi,

I was wondering what would happen to an exchange rate if both the U.S. Dollar and Euro were to experience a big loss in value beginning at about the same time.

Would the exchange rate remain relatively steady because both currencies are losing value simultaneously?

Thanks,

Jeff
Losing value against what though, each other?
  • #3
  • Mar 27, 2012 2:10am Mar 27, 2012 2:10am
Quoting jmbtexas
Hi,

I was wondering what would happen to an exchange rate if both the U.S. Dollar and Euro were to experience a big loss in value beginning at about the same time.

Would the exchange rate remain relatively steady because both currencies are losing value simultaneously?

Thanks,

Jeff
Gold/silver would rise....
  • #4
  • Mar 27, 2012 10:17am Mar 27, 2012 10:17am
Quoting jmbtexas
Hi,

I was wondering what would happen to an exchange rate if both the U.S. Dollar and Euro were to experience a big loss in value beginning at about the same time.

Would the exchange rate remain relatively steady because both currencies are losing value simultaneously?

Thanks,

Jeff
That would imply a lot of volatility = increasing of spread.
  • #5
  • Mar 27, 2012 1:04pm Mar 27, 2012 1:04pm
Quoting jmbtexas
Hi,

I was wondering what would happen to an exchange rate if both the U.S. Dollar and Euro were to experience a big loss in value beginning at about the same time.

Would the exchange rate remain relatively steady because both currencies are losing value simultaneously?

Thanks,

Jeff
overall they would remain steady, however volatility would increase.
  • #6
  • Mar 27, 2012 2:03pm Mar 27, 2012 2:03pm
The biggest crash for USD is usually Bernanke printing more money .

Usually when fear hits the market (S&P downgraded the US), you will see the USD appreciate.

If both pairs are "crashing" against each other, there will be a driver behind it either economic, geopolitical, stimulus package, etc. One pair will be thrown on the back burner and everyone will forget about it, while the other rallies.

or
EUR/USD is very liquid and could stay range bound for weeks.
or
EUR/USD could have a tiny range for a day or so, and then followed by a massive rip your face off breakout. (EUR/CHF)

This is just stuff that Ive seen in the past, hope it helps a bit. FX can get crazy at times.
  • #7
  • Mar 29, 2012 7:15am Mar 29, 2012 7:15am
Yes. I would assume the exchange rate would remain steady if both currencies were losing value against each other.

if EURUSD was at 1.0000 and USD weakens 10%, the exchange rate becomes 1.1000.

Then if the EUR then weakens 10% the 1.1000 exchange rate becomes .9900. Okay, 100 pips is a lot but so is 10%. What I'm getting at is .99 is still fairly close to 1.00 in normal terms (not counting as pips).

Your questions can be worded differently for better understanding:
What happens if both currencies weaken against each other... it's the same as one currency strengthening against the other and then weakening.
  • #8
  • Apr 6, 2012 10:31am Apr 6, 2012 10:31am
I'm guessing they will stay steady unless one of them ends up falling more than the other. and more volatility
  • #9
  • Apr 7, 2012 8:18pm Apr 7, 2012 8:18pm
Sorry, what? For one currency of the EUR/USD to fall, the other has to rise in value. Can you clarify your query - not sure what you mean..
  • #10
  • Edited Apr 8, 2012 1:27am Apr 7, 2012 11:49pm | Edited Apr 8, 2012 1:27am
Quoting Forexnuts
Sorry, what? For one currency of the EUR/USD to fall, the other has to rise in value. Can you clarify your query - not sure what you mean..
go back to fx 101. No need for one to fall so that the other can rise. USD can stay the same while the euro rises making the EUR/USD rise.

EDIT: even both currencies can rise. But if the euro is rising faster than the usd, then eur/usd will rise as well
  • #11
  • Apr 9, 2012 12:26pm Apr 9, 2012 12:26pm
It highly depends on whether it is a currency strength or weakness... I guess when u see a currency depreciate against another, it might not necessarily be its weakness, but rather the paired currency could be gaining strength.


Ie if eur/ usd appreciates .. It might not be eur (strengthening) but rather us having bad data / qe etc
  • #12
  • Last Post: Apr 9, 2012 1:18pm Apr 9, 2012 1:18pm
Guess the initial query could have been worded or clarified..either way, C..you're right.
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