Using Cross-Currency Pairs to Inform Trades on Major Pairs

Even if you prefer to focus exclusively on trading major currency pairs, analyzing cross-currency pairs can provide valuable insights. By evaluating crosses, traders can better understand the relative strength or weakness of specific currencies, which in turn helps in making more informed trading decisions.

How Crosses Offer Clarity

Cross-currency pairs can act as indicators of a currency’s comparative performance. Suppose you encounter potential trading signals for multiple major pairs but can only choose one. Analyzing relevant cross-pairs can help pinpoint which trade has a higher likelihood of success.

Practical Example

Imagine receiving buy signals for both EUR/USD and GBP/USD but being uncertain about which to prioritize. Instead of guessing, examine the EUR/GBP cross-pair:

If EUR/GBP is trending lower, this suggests that the British pound is stronger relative to the euro.In this case, GBP/USD may present a better opportunity since the pound’s relative strength indicates it might perform better against the U.S. dollar than the euro.

In a scenario where the U.S. dollar weakens broadly, GBP/USD could rally more significantly than EUR/USD due to the pound’s relative strength.

Applying Relative Strength Analysis to Major Pairs

This method of comparing currencies through cross-pairs can be applied to any major pair. By identifying which currency is stronger or weaker within a pair, traders gain a clearer picture of potential movements.

Choosing the Right Cross-Pair

When evaluating major currency trades, consider these examples of how cross-pairs can help clarify your decisions:

Unsure between EUR/USD or USD/CHF? Look at EUR/CHF to assess the relative strength of the euro and Swiss franc.Stuck between USD/CHF or USD/JPY? Check CHF/JPY for insights into the relationship between the franc and the yen.Confused about trading EUR/USD or USD/JPY? Review EUR/JPY to see how the euro fares against the yen.Deciding on GBP/USD or USD/CHF? Evaluate GBP/CHF for hints about the pound and Swiss franc.Torn between GBP/USD or USD/JPY? Refer to GBP/JPY for clarity on the pound versus the yen.

The Takeaway

By incorporating cross-pairs into your analysis, you can uncover the relative strength of individual currencies and make better-informed trading decisions. While major pairs remain your primary focus, leveraging cross-currencies as a comparative tool can give you a strategic edge.

Using Cross-Currency Pairs to Inform Trades on Major Pairs

Password Reset

Password Reset

You are already logged in

Uncategorized

Know the 3 Main Groups of Chart Patterns

How to Calculate Pivot Points

Trading Breakouts and Fakeouts

Fundamental Analysis

Currency Crosses

Multiple Time Frame Analysis