To what extent do self-fulfilling prophecies move markets?

For the purpose of this question suppose that the dotted line on the "Eur/Usd" chart represents a self-fulfilling support level, causing price to increase after time t.



This would equate to a decrease in the value of a dollar (and an increase in the value of a Euro). So, if the dollar has fallen in value (as a result of this self fulfilling prophesy), then all other currency crosses involving the dollar will be effected by this. For example, would price not rise in the "Gbp/Usd" chart after time t?

Does this not mean that to trade any currency pair, we must also analyse all other crosses involving the currencies you're trading?

No it doesn't, unless you want to spend your day searching through every forex pair in existence that contains either the $ or the euro whilst achieving absolutely nothing.

Can you provide any logic to back your belief?

I think that the analysis can be based on a review of several correlated currency. No need to look for all the pairs that are associated with each other. Because while you search and analyze the EUR / USD and a dozen pairs, it is likely NZD, JPY, AUD (and so on) will bring about changes in the respective pairs. Then you have to start all over again. You can take a few pairs, such as EUR / USD, GBP / USD, EUR / GBP - that will be enough.

ponzi, you got something here.

many times eurusd and gbpusd for example, move "together" (correlation).

WHEN they move together: when the reason for the move is USD (the common currency in the pairs).


sometime though they move in the opposite direction.

WHEN they move in the opposite direction: when the reason for the move is EUR.

this is why, when you play the correlation game, for example eurusd and gbpusd, you should also keep an eye on the third pair of the ring: EURGBP.


so, eurusd will always move together with one of the two: gbpusd or eurgbp.


take the image below as an example, eurusd 5min chart of the past few days.

we can see in the black circles the moments when eurusd (candle chart) and gbpusd (redline chart) move in the same direction, this mean the USD was the driving force of the movement.

in the blue circle we can see the moments when eurusd and eurgbp (blue line) moved together, this means the EUR was the driving force of the movement.

also, when gbpusd and eurgbp move in the very opposite direction, this mean that also GBP is a driving force.


getting into the correlation stuff is a little bit complex, for sure it can give you an edge, but just remember if you see eurusd going down and gbpusd not going down, BEFORE THINK ABOUT SELL GBPUSD please take a look at EURGBP and analyze it, if you see that eurgbp have valid reasons (techncially or fundamentally) to go down then you may just avoid selling gbpusd.


hope it help

Sure, common sense and 9 years of trading.