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 stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
USD/JPY stays pressured below 145.00 after hot Tokyo inflation data
USD/JPY remains under pressure below 145.00 in Asian trading on Friday, The Japanese Yen is underpinned by hot Tokyo annual CPI data, which fans hawkish BoJ expectations. The pair's downside, however, is cushioned by the recent US Dollar strength and a better mood. US PCE eyed.
Editors’ Picks
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
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