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 could test 1.1750 amid strengthening bullish bias
EUR/USD remains flat after two days of small losses, trading around 1.1740 during the Asian hours on Thursday. On the daily chart, technical analysis indicates a strengthening of a bullish bias, as the pair continues to trade within an ascending channel pattern.
GBP/USD consolidates above mid-1.3300s as traders await BoE and US CPI report
The GBP/USD pair struggles to capitalize on the overnight bounce from the 1.3310 area, or a one-week low, and oscillates in a narrow band during the Asian session on Thursday. Spot prices currently trade around the 1.3370 region, down less than 0.10% for the day, as traders opt to wait on the sidelines ahead of the key central bank event risk and US consumer inflation data.
Japanese Yen languishes near weekly low against USD; focus remains on BoJ policy update
The Japanese Yen trades with a negative bias against the recovering US Dollar for the second straight day, pushing the USD/JPY pair closer to the 156.00 mark or the weekly top. In the absence of any fundamental catalyst, the downtick could be attributed to some repositioning trade ahead of the crucial Bank of Japan policy update on Friday.
Editors’ Picks
EUR/USD could test 1.1750 amid strengthening bullish bias
EUR/USD remains flat after two days of small losses, trading around 1.1740 during the Asian hours on Thursday. On the daily chart, technical analysis indicates a strengthening of a bullish bias, as the pair continues to trade within an ascending channel pattern.
GBP/USD consolidates above mid-1.3300s as traders await BoE and US CPI report
The GBP/USD pair struggles to capitalize on the overnight bounce from the 1.3310 area, or a one-week low, and oscillates in a narrow band during the Asian session on Thursday. Spot prices currently trade around the 1.3370 region, down less than 0.10% for the day, as traders opt to wait on the sidelines ahead of the key central bank event risk and US consumer inflation data.
Gold awaits weekly trading range breakout ahead of US CPI report
Gold struggles to capitalize on the previous day's move higher back closer to the $4,350 level and trades with a mild negative bias during the Asian session on Thursday. The downtick could be attributed to some profit-taking amid a US Dollar uptick, though it is likely to remain cushioned on the back of a supportive fundamental backdrop.
Dogecoin breaks key support amid declining investor confidence
Dogecoin trades in the red on Thursday, following a 4% decline on the previous day. The DOGE supply in profit declines as large wallet investors trim their portfolios. Derivatives data shows a surge in bearish positions amid declining retail interest.
Monetary policy: Three central banks, three decisions, the same caution
While the Fed eased its monetary policy on 10 December for the third consecutive FOMC meeting, without making any guarantees about future action, the BoE, the ECB and the BoJ are holding their respective meetings this week.
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