Currency Dependency

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Currency Dependency

In this article, I want to explain to you the secrets of what most traders don’t know, even those who have experienced it. Did you know that all currency pairs depend not only on each other, but also on other “parties” who are not directly involved in the transaction? This dependency describes the multi-directional movements of the dollar in various currency pairs, and correlatively, this is related to a lack of understanding of how to hedge in the forex market. By knowing each one or the other exchange rate, you can apply hedging positions using other trading stock instruments.This is true in cases like extreme corrections on the market, where your position is in the minus zone, while you don’t want to close it. However, you can secure your profits by opening transactions on the “dependency” instrument.

Now about the secret. We take the example of the understanding of commodity (country) currencies. The economies of several countries are highly dependent on oil exports, while oil prices are calculated in US dollars. For example, Russia and Canada. Here the Russian ruble and loonie exchange rates are very dependent on oil prices. If oil prices fall, these oil-producing countries will suffer, their economies will collapse and their national currencies will weaken. However, if oil prices rise, their economies will grow and their national currencies strengthen. Please look at the ruble, loonie and oil charts. You will see a clear trend of relations between the two exchange rates with the price of oil.

The Aussie is also included as a commodity currency, because the Australian economy is largely dependent on exports of iron ore, gas and other minerals. Thus, Aussie is correlated with iron, like rubles with oil. There is one other commodity currency, the kiwi. New Zealand is one of the active participants in the export of raw materials, such as minerals (iron ore, coal, oil), agricultural products etc., and mainly depends on copper.

It is important to remember that all currency pairs included in commodity currencies are the most liquid currencies, and in my opinion, easier to predict. If domestic macro-economic indicators have an impact on the currency exchange rate immediately, then the analysis of raw materials can provide an overview of the movements of these currencies in the long run, or in other words is determining trends !

As for the two most popular currencies, namely EUR and GBP, these two currencies are highly dependent on economic factors that have the potential to cause increased volatility, swing sharp prices and cause price movements to appear erratic, this is often seen through cross rates . For beginner traders , if you want to make predictions more easily, then I recommend trading in commodity currencies. Understand and continue to develop your trading as well as possible!

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