Forex Trading Profit On Cross Currency Pair
Opportunities and earnings of trading profits on the cross currency pair can be greater than the major currency pairs, if you are observant.
News reports and technical analysis on trading sites mostly talk about the movement of major currency pairs (FX majors). This information is very useful to know which currency is strong and that is weak, but with only pay attention to major currency pairs, your trading opportunities will be limited. Most traders are interested in major currency pairs such as EUR / USD, USD / JPY and GBP / USD. This is understandable because most news, predictions and analysis always refer to the major currency pairs.
As with FXCM brokers, the highest concentration of traders is EUR / USD, about 30%, Gold-US Dollar or XAU / USD around 15%, GBP / USD and USD / CHF around 10%. The other major currency pairs are USD / JPY, AUD / USD, NZD / USD and USD / CAD, between 5 to 7%. The cross currency pair that does not involve USD is below 5%.
The imbalance of the spread is due to the many traders taking the current in determining the currency pair for trading regardless of the odds of cross currency pair seen from fundamental and technical analysis.
Advantages of Cross Currency Pairs
If you look at the strength index of a currency at a time like the image below (source: DailyFX), then you can choose to trade in the weakest versus the strongest currency pair, not the weaker versus the weaker or strong versus strong. And the pair does not have to be a major currency pair.
Strong weakness of a currency is caused by the level of demand and supply compared to other currencies, and this is often influenced by the monetary policy or interest rates of the central bank of the country’s currency. As with the USD / JPY pair, JPY rebounded from October 2013 to January 2014, but the gains were stuck at 100.72 level at the start of February 2014, and again looked weaker. At the same time USD also tends to weaken.
While there has not been a clear driver for USD strengthening since early January, EUR and GBP tend to strengthen. For a swing trader who tends to follow the trend direction to make a profit, would be more interested in entering the EUR / JPY or GBP / JPY pair than USD / JPY or EUR / GBP, ie by considering a strong currency versus a weak one . Here’s a comparison of pip gain between USD / JPY versus EUR / JPY in the same time period when USD and EUR are equally stronger against JPY. This happens because the EUR at that time was being stronger than the USD.
Another example is the AUD / CAD currency pair. If you see the client deployment image on the FXCM broker above, this currency pair is not listed or the percentage of trading in this pair is below 3%. But if you look at both fundamental and technical analysis, this currency pair is interesting enough to trade. Fundamentally, Australian employment data are good and Canada is disappointing, and technically speaking, the resistance level of the strong 1,0000 psychological numbers is being pierced.
After the psychological support level 1.0000 is broken (point A) and turned into resistance, this level is prone to be breached again. The likelihood of an uptrend move is quite large considering the AUD is strengthening against the USD and the CAD is being weakened against the USD. If you have a buy position, the exit target can be at level 1.0300 which coincides with the 100% level of Fibonaaci expansion.
Opportunities and earnings of trading profits on cross currency pair can be greater than the major currency pairs if you are keen to see the potential of each currency through fundamental and technical analysis. For the spread is relatively larger than the major currency pairs, but what does it mean if the spread is high if you’re sure to make a profit?