Brian Twomey
Brian's Investment
The definition of a cross pair is the creation by two separate currency pairs with USD and Non-USD employed as the basis to calculate. The term is triangulation and done through the various legs. What is created is a cross pair. A cross pair triangulation and creation of a currency pair is the opposite to a synthetic currency.
A synthetic currency is created by pairing a convertible currency to a blocked currency. A blocked currency lacks ability to freely trade and trades on the black market. Argentina ARS and other South and Central American nations are prime examples. The last manner to create a synthetic currency is to match a currency pair to a Non-Deliverable Forward. Many nations Forwards are non-Deliverable. Prime examples include Brazil, South Africa, South Korea, Israel. The key is to match the spot equivalent currency to the NDF to lock in a price on X date and to guard against volatility.
A few examples to triangulate cross pairs include JPY. EUR/JPY is created by EUR/USD X USD/JPY. GBP/JPY is created by GBP/USD X USD/JPY. NZD/JPY is created by NZD/USD X USD/JPY.
CHF/JPY is created by USD/JPY Divided by USD/CHF. CAD/JPY is created by USD/JPY divided by USD/CAD.
GBP/NZD is created by GBP/USD divided by NZD/USD. GBP/CAD is created by GBP/USD X USD/CAD. AUD/EUR is created by dividing AUD/USD by EUR/USD. EUR/GBP is created by EUR/USD divide by GBP/USD. AUD/NZD is created by AUD/USD divided by NZD/USD.
A pair like MXN/RUB triangulates as USD/RUB divide USD/MXN but sometimes must factor USD/MXN, EUR/RUB and EUR/USD. Depends on the time of day, liquidity and spreads. When those markets are open and traded, spreads are low but widen significantly upon market closes. Both RUB and MXN are oil producer currencies however RUB tracks Brent while MXN follows WTI. Both respond to Brent/ WTI spreads. OPEC influences more Brent than WTI. Overall 70% MXN exports travel to the United States therefore MXN is most sensitive to DXY.
Cross pairs move more than underlying USD and Non but are never as liquid. Liquidity depends on USD V Non-USD for cross pair movement because those pairs are most liquid.
One factor influences RUB is the CBR cut its USD reserves below Euro for the first time since 2008. USD reserves since Jan 1 was 39.6% from 44.8% in 2015. Euro current is 46.1% V 41.5%.
The general rule for cross pair triangulation is if USD is the base for both currency pairs then divide to obtain the cross pair price. If USD is located in the quote position then divide, otherwise multiply. Basic formula is A/B X B/C = CB. Cross rates equal the ratio of the two corresponding pairs.
Trading currencies and other financial instruments carries a degree of loss and possible loss of entire investments. Please managed your own risks, stop loss, and margins requirements.
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Japanese Yen trades just shy of 157.00 versus the USD
The Japanese Yen weakens across the board after BoJ announced its policy decision. A shortlived spike in the Yen may be testament to an attempt by the Japanese authorities to intervene. US PCE Price Index shows higher-than-expected inflation but does little to impact USD/JPY which almost touches 157.00.
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.
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