How do you choose （buy/sell) currency pairs ？

Trading Discussion
1

hey guys ,

this is totally newbie, and i found the learning center from baby pip is absolutely amazing . whole curriculum is presented in a interesting way . i adore all the images they use .

i am in pre-school. while i am reading " know when to buy or sell " below question came to my mind .
Buy " base currency "when the country would get weaken , but how to define which currency pair?

E,g if i think EURO would get weaken, i would like to Sell “Euro”,but there lots of pairs with EURO. Which pair should i sell ? EUR/CHF ? EUR/GBP ? EUR/JPY ? EUR/USD ? i just choose the other country that i think it will go strong ?

it might be naive to ask… but hope anyone can light me up .

-emma -

2

[B]Hello Emma, I will try to help…

When you trade a currency, you need to consider this: what is your bias?

Let us say that you thought that the Euro was weakening, and you wanted to sell it: now that you

had a definite bias, you could move on to the next stage, which is choosing which pair to target

in selling the Euro.

This is where it gets a little more complicated… Let us make a list of possible currencies against

which you could sell the Euro:

  1. US Dollar;
  2. Japanese Yen;
  3. British Pound.

Now you need to ask yourself: which of these three currencies has the strongest outlook, going

by (for example) central bank monetary policy or national economic data? This is the fundamental

analysis… Based on this, you may want to sell the Euro against the Pound or the US Dollar, as the

Yen is itself fairly weak…

From a technical angle, both the EUR/GBP and EUR/USD have had quite a sell-off, but there is still

room to the downside… If you could choose a pair which had more room to the downside than

these two, it would obviously be EUR/JPY, technically speaking, but all Yen pairs are still buoyant,

so until a signal from all Yen pairs confirms the start of a sell-off, you may not get a true move

to the downside in EUR/JPY, regardless of its technical positioning or the Euro’s weakness…

Does this help? [/B]

3

information is very helpful.PipME HAPPY, i am very grateful for the information.

though, i have another question . Does that mean i need to choose exchange currency (not base currency ) that is going strong ,not weaken ? for example EUR/JPY , both euro and JPY is going down together. will currency pairs actually get weaken together ?
-Emma -

4

Hello Emma, yes, you must not pick a pair
where both currencies are weak, or you could find a lot of choppiness but not a lot of trend… However, in practice, when two pairs have a balance of buyers and sellers then you could take advantage of a steady range or channel…

Yen pairs have a double driver, so they are tricky: for example, when there is a risk-appetite momentum as exemplified by the Nikkei225 equities index, a pair like EUR/JPY will rally upward, regardless of a weak Euro; however, when a really strong Euro sell-off takes place in the EUR/USD, like the one we saw today, then EUR/JPY will be driven by that theme and drop similarly to EUR/USD.

This is why trading Yen crosses is a little trickier…

5

Hello Emma!

As if on cue, John Kicklighter (Chief Currency Strategist at DailyFX.com) produced a video, released this morning, dealing with choosing currencies to trade, and specifically those paired
with the Yen; take a look, if you have a few minutes:

6

This all depends on your point of view. When it comes to trading there will always be two sides to the trade which means some will look to sell EURJPY while others will look to buy it. Both can be right or wrong and it all depends on time horizon, strategy etc. So you need to figure out what is right for you and then trade it. You could sell it and make money and I could buy it an make money.