This is the thing that confuses me. Like when you trade on a pair say the USDCAD for example you are only trading on that pair right?
Let’s say a market maker comes in and decides to long the USDCAD so they force price to move upwards i notice that USD as bid pairs like say the EURUSD/AUDUSD tend to fall.
Therefore is it safe to say if alot of ppl/big banks etc start to long say the USDCAD the USD rises in strength and indirectly pairs that the USD is behind like EURUSD fall? Because all the retail traders are buying USDCAD and are not trading EURUSD but somehow it falls as the USD gains strength i guess. What is actually happening?
Yes, it is true. When a currency is bought/sold, it is bought/sold on others. To some degree though. Cause it depends on what the others are doing also.
All you have to do is arrange a screen with all one currency. EUR/USD, GBP/USD, USD/CHF, AUD/USD etc…
Make the time frame pretty small, say 1 minute. Watch them move, in tandem. They are not completely independent of each other. But on the other hand, their not exact either. So, to say it accurately, there is a flow of one currency across the board, more than independently moving. But, so is all the other currencies acting that way also. There’s so much going on with the flow of money. And when more participants agree on a direction, the faster it will move. The less they agree, the slower it will move.
I have my screens set up that way. If I want to see how the USD is doing, I check the USD screen. There I have the USD pitted against the other 7. 7 pairs on one screen. And also I keep them grouped. The top row will be the USD against the Majors (EUR/USD, GBP/USD, USD/CHF, USD/JPY). On the bottom row I have the USD against the Commodity currencies (AUD/USD, NZD/USD, USD/CAD). You will see correlations within the two groups also. Cause the USD will move differently against the Comms than they will move against the Majors. If you’ve heard of the ‘risk on’ scenario, you will tend to see the Comm currencies move higher against the Major currencies. ‘Risk off’ you will see the Comms move lower against the Majors (moreso the JPY, CHF, and even the US).
So, you see, it’s all relative. And you can get to see their movements better if you set up your screens in that manner. (I have my charts set up that way with all 8 currencies)
P.S.–All the charts there are in the weekly time frames. It’s a birds eye view. And that is a very important point. You need have the right time frames in place in regards to your trading plan. (Surely you wouldn’t want to have weekly tf’s and be trading short term style)
Yep, what’s awesome about the currency markets is that the pairs are all interconnected! Even if a market catalyst has a strong impact mostly on USDJPY, it could wind up having a spillover effect to other USD and JPY pairs such as EURUSD, USDCAD, AUDJPY, or GBPJPY. As Mike Wolski mentioned, it’s all relative! Some pairs tend to be more sensitive to the indirect effect depending on the relative strength/weakness of the counter currency.
