good afternoon good morning good evening everyone
welcome to our another video here from Diary of a trader this video we're gonna talk about something
called cross currency cross currency is nothing more than a Forex pair that does not have the US
dollar in the pair so it could be the the Euro Pound the pound yen any of the yen pairs the
Aussie dollar Kiwi dollar anything that does not have the US dollar those are cross currency
pairs now saying that though it's it's important to recognize the the influence of the dollar on
on everything else the dollar is by far by huge margins the most traded and used currency on the
planet it is the most reserved highest reserve currency and in forex the dollar pairs represent
the great I think I think it's over 80% of the entire volume is with dollar pairs so knowing
that it is really important to understand that how things are performing against the dollar
can really increase your chances of having winning trades with cross currency players
this is actually a huge personal favorite strategy of mine I generally do not do a lot
of things outside of technical analysis but this is a form of analysis that kind of moves
further into fundamental but either way it is extremely useful I think you're going to see
a good example of that today so we have two charts here on the left side and the right side
we have $2.00 pair charts okay so we have the we have the euro dollar and then we have the Euro
Pound actually I need that to be the pound dollar there we go and the two blue lines are are
representing the same period of time in both charts okay so we have the euro dollar on the left
and then the pound dollar on the right euro dollar on the left and the cable on the right now you'll
notice that there's a little difference between the two charts as we look at them the the price
action is a little different all right they're divergent or they're they're going to the opposite
so you can see on the Left chart from August 6th to September 25th we see price trading down
and then from August 6th to the 25th on the pound on the cable chart we see that trading
up now how does that help cross currency pairs well I'm going to show you why because whatever
you know for if we're gonna look at a pair like the Euro Pound alright what we're looking at is
you know comparing the Euro against the pound has always been a kind of a tricky evaluation
especially given the brexit issue but that's why we we try not to look at how the Euro is doing
versus the pound against one another look at how they're doing against the dollar so you can
have to reference the dollar pairs in order to successfully you know get an advantage in the
cross currency pair okay so when we're looking at the Europe the euro dollar on the top left
what is that doing against the dollar is that winning or losing its losing against the dollar
okay it's weakening against the dog so the Euro is underperforming the dollar I look at that same
time period over here on the pound dollar on the cable I see the pound winning or losing against
the dollar it's gaining so on the on the top right hand chart the pound dollar is outperforming the
US dollar and because the US dollar is weighted so heavily in forex if there is another currency
that is outperforming it it will more than likely be outperforming everything else as well so what
I should see if I'm going to do a cross currency pair is if I know the pound is beating the dollar
and the euro is losing against the dollar what I should see is pound being able to outperform
the euro and if we look at that same time period that is exactly what we see have happening over
here this is the pound euro what do I see have occurring I see the pound trading up a good amount
against that's the dollar sorry that's I meant to have that Euro Pound on there hold on defeated
the whole flow of everything all right here's the Euro Pound okay I should see on the Euro
Pound pair because the Euro is losing against the dollar just going the inverse now because the
Euro is losing against the dollar I should see it it performed poorly against the pound as well is
that what occurs absolutely the euro is performing poorly against the dollar it is going to perform
poorly against the pound why because the pound is performing better against the dollar okay so
you got kind of a double whammy going on there and that occurred you know right around where
that top was in the Europe out singles true for pretty much any other type of currency pair if we
want to look at if we want to look at well let's look at the Aussie dollar US dollar and let's
look at another pair of whack so we could look at the same parents we could we could identify
if there's some divergence here or not get rid of that there see if we can identify a time period
where there's a little bit of change in direction sometimes you know one thing that you will notice
is that sometimes you don't find a huge amount of changes in a lot of pairs as far as their their
their trend directions related to the dollar so okay we'll do this there's a October 21st and
through November 5th so a pretty short time frame I see the I've seen the Aussie dollar US dollar
trading up here a little bit but then what do I see in the pound I see it trading pretty flat
against the US dollar how would I interpret that well one would interpret that that you should
see the pound sorry the Aussie dollar performing better against the pound than the other way
around is that true well let's check though we'll check the bottom right chart here this
is the pound Ozzy dollar and I am looking for the time period of October 21st through November
fifth and that is telling me that what occurred did I see the pound perform weaker against the
Australian dollar because the Australian dollar was performing better against the dollar than
the pound was against the dollar absolutely yes I see the pound performing weaker against the
Australian dollar so across currencies are a lot of fun especially the yen pairs the yen
pairs are blessed the end pairs are kind of like their own different beasts as far as the
the most active like the pound yen is one of the most active pairs in the world III trade it
frequently I think if the pair I trade the most I love I love the pound you end it is a fun
fun pair and it's it's one of the few cross currencies or Forex pairs out there that that
is very active pretty much all day long okay it is a very active pair it's not like like the
Euro Looney is can be active but it doesn't have a whole ton of volume but the pound yen that is a
very active pair additionally in quote when we're talking about cross currencies folks should also
just kind of talk about about the dollar index because even though you know we're talking about
cross currencies and non dollar related pairs when you see the dollar index trading down check
the other check all the other pairs like the the euro dollar the pound dollar the Aussie dollar
the Kiwi dollar if you see the dollar index trading down figure out which one of those other
other currencies is performing best against that dollar and that against the dollar and that is
the pair that you're probably gonna want to be bullish on against all the other currencies okay
whatever currency is outperforming the dollar the best that is the one that you want to trade and
that you want to trade and be bullish with okay whatever is performing the worst against the
dollar that's the one that you want to sure that's currency you want a shirt against okay so
hope you find this video helpful hope you found it useful and I look forward to speaking with you
in our future videos have a great day bye bye
