Sometimes an uneven distribution exists between USD pairs, Non USD pairs and cross pairs. The only relationship for example NZD and AUD share Vs Euro is found in EUR/NZD and EUR/AUD. What if AUD/USD is out of sync with EUR/AUD or NZD/USD is out of sync with EUR/NZD. An adjustment is desperately needed and occurs immediately. An adjustment sometimes favors the cross pair, sometimes not. EUR/NZD and EUR/USD may win and NZD/USD loses but maybe NZD/USD and EUR/NZD may win. I tried to get EUR/NZD out this morning but thanks to the forex gods, I failed to do so. Today was a day when the cross pairs were out of sync with the respective underlying pair. I noticed it in EUR/USD, EUR/NZD and NZD/USD. Its why EUR/USD didn’t come near the bottom side target yet retraced to near hit perfect 1.1283 target. A perfect situation should’ve seen EUR/USD dead stop and reverse at 1.1241, instead EUR/USD went higher to dead stop at 1.1273, 10 pips before original target at 1.1283. EUR/USD was strictly cross pair driven and its what dragged EUR/USD higher from 1.1241. Cross pair driven days are seen not very often but yet seen. Traditionally, the underlying drives the cross pairs. How do we know. When a cross pair is say above a respective price and the underlying is below, its first warning a problem exists. It only takes one cross pair and the whole mix of prices falls out of sync. What’s so special about today. Well it defines the actual currency price value for the remainder of the week so the adjustment price fight must settle quickly. Only a central bank can do it so its a central bank Vs central bank fight. Do they settle on their own pair price or capitulate to the cross pair. Depends, sometimes they capitulate, sometimes not. Is the only time a true market exists, the remainder price times are well known long in advance.
EUR/USD. Bottom. 1.1213. Range break above 1.1336, Below 1.1204. Overbought sell point 1.1336, Failure point 1.1306. Strategy. Long above 1.1271, target 1.1336, watch here its range point. Then reverse to 1.1303 anf failure point at 1.1288. Points on the way up, 1.1273, 1.1277, 1.1282, 1.1292, 1.1306, 1.1321, 1.1336.
Shorts below 1.1269, Target 1.1241. Watch here for reversal to 1.1269 and higher. Points on the way down, 1.1260, 1.1252, 1.1245, 1.1227, 1.1213 Bottom. Point 1.1241 must cross to go higher.
Welcome and special recognition to Vantage FX from Australia,
Brian Twomey, Inside the Currency Market, btwomey.com