Currency cross rates are currency pairs that does not include USD,
such as EUR/JPY. Pairs that involve the EUR rate are called euro
crosses, such as EUR/CHF and EUR/JPY. All other currency pairs that
don't involve USD or EUR are generally referred to as cross rates.
Examples of cross rates are GBP/CHF and CAD/JPY.
Nowadays, carry traders love the yen crosses due to the very low JPY
interest rate, a great currency cross pair for carry trades is the
NZD/JPY is, no pair has shown a greater interest rate differential than
this currency pair, forex traders receive "big" daily interest fees
while holding this pair long.
Most Popular Currency Crosses include:
- EUR/JPY
- EUR/GBP
- EUR/CHF
- NZD/JPY
- GBP/JPY
EUR/JPY Currency Cross
The
EUR/JPY cross rate is highly traded among currency traders and is
affected by the movements of EUR/USD and USD/JPY. The price movements
of this pair are mainly based on interest rates and growth
differentials between the Euro zone and Japan.
Characteristics
Average broker spread: 3-5 pips
Daily range average : 95-115 pips
What moves EUR/JPY?
- The interest rate differential between the European Bank(ECB) and the Bank of Japan(BoJ)
- Growth differentials between the Euro zone and Japan
- Oil prices since Japan imports 99% of its oil
- European and Japanese economic data
Trading the EUR/JPY
Applying Technical Analysis and Analyzing Fundamental News from the
Euro and Japanese zone to make trading decisions because the health of
the Japanese economy versus the European economy is the key in EUR/JPY
movements.
EUR/GBP Currency Cross
The
Euro zone is the second largest trading partner of the UK. If you want
to trade the fundamental outlook for the United Kingdom or its
currency, the British pound, this is one of the pairs that you can do
so, since the GBP/USD pair is more driven by market sentiment of the US
dollar.
Characteristics
Average broker spread: 2-3 pips
Daily range average : 25-50 pips
What moves EUR/GBP?
- The interest rate differential between the European Bank(ECB) and the Bank of England(BoE)
- European and UK economic data
- Growth differentials between the Euro zone and UK
Trading the EUR/GBP
Applying Technical Analysis and Analyzing Fundamental News from the
Euro and UK zone. EUR/GBP is excellent for the beginning forex trader
because it's low volatility.
EUR/CHF Currency Cross
The
Euro zone is the primary trade partner of Swiss zone. This is an
attractive cross currency pair to long for carry traders (due to the
very low CHF interest rate) when the overall technical and fundamental
outlook supports an appreciation of EUR/CHF.
Characteristics
Average broker spread: 3-5 pips
Daily range average : 35-48 pips
What moves EUR/CHF?
- The interest rate differential between the European Bank(ECB) and the Swiss National Bank(SNB)
- Swiss and Euro zone fundamentals
Trading the EUR/CHF
Applying Technical Analysis and Analyzing Fundamental News from the
Euro and Swiss zone. EUR/CHF is frequently chosen for carry trades
which involves going long a high-yielding currency (EURO - 3.50%)
against a low-yielding one (CHF - 1.50%). Traders earn daily interest fees when holding this pair long (rollover fees).
NZD/JPY Currency Cross
This
is a great cross pairs for carry trades, no pair has shown a greater
interest rate differential than the NZD/JPY currency pair. As of
February 2007, the interest rate spread between the currencies was a
whopping 700 basis points, equivalent roughly to an annualized 7%
differential, which when multiplied by a 5 times leverage, equals to
approximately 35% annual rate of return! This is a very attractive
cross currency pair to long for carry traders when the overall
technical and fundamental outlook supports an appreciation of NZD/JPY.
Characteristics
Average broker spread: 7-10 pips
Daily range average : 50-90 pips
What moves NZD/JPY?
- The interest rate differential between the Reserve Bank of New Zealand and the Bank of Japan
- New Zealand and Japanese zone fundamentals
Trading the NZD/JPY
Applying Technical Analysis and Analyzing Fundamental News from the New
Zealand and Japanese zone. NZD/JPY is a very attractive carry trade due
the very large interest rate differential between the New
Zealand(7.25%) and the Japan (0.25%). Currency traders earn daily interest fees while holding this pair long (rollover fees).
For example*,
If you buy 1 standard lot NZD/JPY ($8,32/pip) and you keep this
position for 250 days, it will bring you $3250
gain from the interest rate differential between the New Zealand(7.25%)
and the Japan (0.25%)!!! The calculation is very simple: The daily
interest fee you earn (date: 02/15/2007)while holding long NZD/JPY is
$13,00, so $13,00 x 250 days = $3250.
Note
(1) Most brokers display the daily interest fee on their online trading
platform. In order to earn interest, most brokers require to have your
account set on 2% margin. You can ask your broker if you need more
info.
(2) Most crosses against the Yen are interesting for the carry trader
such as: EUR/JPY, GBP/JPY, AUD/JPY, NZD/JPY and CAD/JPY due to the very
low JPY interest rate.
*The above calculation is an example only and is to be used for
educational and informative purposes only since the amount actually
debited or credited to your account will vary depending on the forex
broker.
GBP/JPY Currency Cross
No
currency pair provides more action than the GBP/JPY cross. Moving 300
pips in one day is no exception, if you like volatility, than this is
the pair you need to take a look at!
Characteristics
Average broker spread: 6-10 pips
Daily range average : 150-200 pips
What moves GBP/JPY?
- The interest rate differential between the Bank of England(BoE) and the Bank of Japan(BoJ)
- Growth differentials between the UK zone and Japan
- Oil prices since Japan imports 99% of its oil
Trading the GBP/JPY
Applying
Technical Analysis and Analyzing Fundamental News from the UK and
Japanese zone. GBP/JPY is extremely volatile and therefore, it is not
recommend to trade if you are a novice in currency trading.
http://www.aboutcurrency.com/university/fxcourse/most_popular_currency_crosses_analysis.shtml
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