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Chapter 22, Part III. Crosses – Continuation of Continuation... and Finish. Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Crosses on majors impact continued

    You make analysis of GBP/USD end also open short position with it, since USD starts to increase in value. When finally, rally is over you enjoy with 150+pips that you’ve made during 2 hours of hard work – particularly sitting in front of computer and looking how your profit is rising. Simultaneously you chat with your friend (who is also a trader) who made the same trade but with USD/JPY by buying it and his profit appears to be 1.5 - 2 times bigger that yours.

    You become frustrated about that – How could this happen if US dollar was purchasing across the board? The reason is the GBP/JPY cross – not always of course, but very often, at least when we’re speaking about technical reasons.

    When Fed has announced rates hike, USD/JPY jumps up, and if it has broken some significant resistance level – it has triggered a lot of buying stop orders. These pushed the USD/JPY even higher. This has led to even more weakness of JPY and pushed crosses, particularly GBP/JPY higher also. Breakout traders start to step-in after the breakout and join with the up move. This makes GBP/JPY also pass through some solid resistances and trigger its own stop losses. But now JPY stands on the other side of GBP/JPY pair, hence triggering stops will lead to buying GBP and selling JPY. This will increase weakness of JPY but makes GBP a bit stronger and slow down GBP/USD down move. That’s why GBP/USD fall becomes a bit slower and this pair does no show such a great result as USD/JPY.

    Still keep in mind that although there could be difference in pips, the result also could be different in terms of currency. With GPB/USD you will get profit in USD, while in USD/JPY in JPY. When you will compare this result in same currency it could be different.

    We’ve discussed only a theoretical example, but in reality this interdependence between all pairs is much more complicated, so impact of technical factors will not be so simple to analyze and predict. The GBP/USD could have influence not only on the GBP/JPY cross but on other crosses as well. What will be resulting impact? – it’s hard to predict, especially when the moves fast.

    So enjoy with any profit that you could get and save, whistle on the road to the bank and don’t care about what could happened if you had traded USD/JPY instead.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post themon the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    #1 Sive Morten, Dec 22, 2013
    Lasted edited by : Sep 30, 2016
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