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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.
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