Just reading a book, which mentions crosses such as EURCAD and the article is going on about breakouts and there being less S&R because not as many people trade it. As far as I was aware crosses aren’t traded at all, they are just mathematical calculations of other major pairs aren’t they?
In fact, why do we trade crosses at all, why not just trade the major, which has the obvious S&R points?
I watch the crosses quite a bit myself. EUR/CAD usually good to follow along with oil. And all of the JPY pairs for the carry trade and correlation with the equities markets. You can also find some very volatile pairs such as EUR/NZD and GBP/AUD, though spreads are a little wider.
The article states this:
EUR/CAD…So, if it breaks out of a recent level of support or resistance that’s been intact for a couple of days, it’s far less likely to stop very quickly like the euro?US or even the pound/US. I attribute that to the fact that it’s not heavily traded, there’s not as many people waiting for it to get to a certain level and it is off the radar.
It’s a cross, so isn’t this just false? The S&R levels are derived from the EURUSD and CADUSD presumably.
SanMiguel - We’ve been through this before on one of your other posts. Crosses are absolutely traded in their own right. Think about it for a second and you’ll realize this is true. If a European company wants to buy something from a Japanese firm, which is more likely - that they swap Euro for Yen, or that they swap Euro for Dollars and then Dollars for Yen? Any corporate treasurer who did the latter, adding to the total cost of the transaction in the process, would be fired post haste.
That said, obviously some crosses are much more active than others.
Then why are they crosses? Why not just create a currency that is traded by itself? 
There is a lot of confusion between traders. Some say the market is moved only by forex traders. Others say it is companies buying products and therefore investing their money in the country, etc.
Hi SanMiguel,
I’m not sure what you mean by “a currency that is traded by itself”? Do you mean like a commodity?
For your other question about what moves the markets, I remember reading somewhere that the forex market is about 90-95% speculative. Meaning that most of the market is moved by investors looking to make money and not necessarily as a function to buy/sell products. That would make up only a small part of the forex market.
What I’m not sure about is if these forex traders invest only in forex, or in multiple markets that include stocks and commodities, e.g. I’m buying euro stocks now, hmmm, dun look good, i’m going to go for something less risky, moving my money into yen and dollars now, ooh look, i think oil is going to go up, time to take my money out of yen and usd and pump some of that into oil, etc.
I’m not sure if that’s relevant but it is something that I like to keep aware of especially in these risk-averse times.
So, why make a cross at all? Why not just represent that pair. Why does it have to be a calculation of 2 other pairs plus also the actual intrapair trading?
By some definitions every currency pair is a cross rate.
Why not just create a currency that is traded by itself?
There are several currency ETFs available for single currency trading.
Whatever it was you read was wrong, or perhaps you misinterpretted what they were saying. Read this post from my blog for some real numbers. Swaps are the biggest part of the forex market, and that is mostly capital and trade flow related, not speculation.
I have no idea what you’re talking about with “why make a cross?” and “why not just represent that pair?” EUR/JPY is considered a cross. It trades. It’s represented as EUR/JPY. What’s the issue.
You seem to be missing the point that the forex market is entirely an inter-relationship market. It is a series of relative valuations of one currency against another. You cannot think of it the same way you would stocks or bonds or commodities.
EUR/JPY is the relative value between the Yen and the Euro. The Yen also has a relative value against the USD, GBP, CHF, AUD, etc. Likewise, the Euro also has a relative value against the USD, GBP, etc.
Why call it a cross then?
If it is a relative value then why not just get the relative value instead of calculating EUR/USD and USD/JPY. Why “cross” it at all?
I guess the value would come to the same.
You’re getting hung up on an entirely meaningless bit of terminology. I don’t know when it started being used, but it’s been in place for as long as I’ve been involved in the markets (circa 94). “Majors” is the primary USD pairs. The “crosses” are the primary non-USD pairs. That’s it. It has nothing to do with any kind of action. There is no “crossing” activity.
As for calculations…
EUR/JPY = EUR/USD x USD/JPY
just as …
USD/JPY = EUR/JPY / EUR/USD
as…
EUR/USD = EUR/JPY / USD/JPY
There is an excerpt from a new book in the July issue of Currency Trader Magazine where they talk about how small the retail trader impact is on the currency markets as a whole. I haven’t read the book yet but the piece they ran seemed pretty interesting.
I think we all agree the retail trader doesn’t move it any amount that is visible. It’s more whether it is moved by people simply trading the market buying and selling currency speculatively or whether it is moved by actual orders for products…as in I need x million amount of wood or steal from this country and am therefore paying you therefore making your currency stronger eg US wants to buy wood from Canada, therefore the CAD gets stronger.
Hi Rhodytrader, Mackus,
Thanks for the clarification.
Wait a sec, I don’t understand something. If that’s true, then how do technical indicators such as S+R lines, pivot points, and fibonacci work as well as they do? If the biggest part of the forex market is capital and trade flow related, why would these investors care about the above indicators… wouldn’t they just enter on a “when-needed” basis? Or do they actually time their trade, which is what gives the forex markets some measure of predictability?
Who drives the price back when it hits S+R? Who takes profit at fibonacci, which causes price to bounce back? Etc… That would be the spot market, or retail traders right? But the price movements are big…which would mean that the spot market or retail traders’ influences must be large.
Or am I missing something?
Apologies to SanMiguel if I hijacked your thread, but I really am curious.
It is most definitely NOT the retail trading community that drives prices in the forex market. I’ve seen differing figures, but somebody recently suggested that retail forex volume is something like $150bln in a market that does over $3trl. In other words, it’s a drop in the bucket.
As for the trade and capital portion of the market, while they might not specifically use fibos or indicators, they do have strategies and reasons why they do their transactions as a given point. Plus, there are trades done by banks and such related to the other flows involving dynamic hedges and stuff like that. The market is deeper and more complex than most folks understand and the reasons why trades get done by differnet parties at a given price are widely varied. All of that comes together in the price action.
I’d just like to add that in any market, the sellers are looking to receive the highest price they think they can get, and the buyers are looking to pay the lowest price they think they can. Just because they NEED to buy some Euros at some point during the day doesn’t mean they are not smart enough to wait til price moves in their favour!
Which brings me back to my original question on another thread, which was how is the calculation done, what is it comparing? There must be some central database somewhere that tracks how much currency a country has in its national banks or something to be able to make an exchange rate.
Originally, some people say, the calculation was done by the value of gold that a country had but the comparison must be calculated somehow.