Since a majority of the forex market will deal with the U.S. dollar, you can imagine that many of the news reports will cause U.S. dollar-based currency pairs to spike. The US has the largest economy in the world, and as a result, speculators react strongly to U.S. news reports, even if it doesn’t cause a huge fundamental shift in the long run.
What this means for your charts is that you will see several “spikes” even if there is a trend emerging. This can make it harder to spot trend or range indications.
The day to day economic activities of the U.S. can keep U.S. dollar based currencies such as EUR/USD (above) from making smooth trends.
Conversely, we can see that during the same date range, cross currency EUR/JPY made a much, much smoother ride to the top. This was probably due to less spikes that came from U.S. data. So as you can see, both charts showed the euro rise during the same time period, but the one without the U.S. dollar (EUR/JPY) made for a much easier trade.
Our resident currency cross monster Cyclopip caught a hundred pips by riding EUR/JPY’s trend. Check out how caught that move!
If you are a trend following kinda dude, then currency crosses may be easier to trade than the major pairs. It will be easier for you to spot the trend and be more confident in your entry points because you know that these technical levels hold more than they do for the majors.
In the next section, we’ll discuss how playing with currency crosses can also allow you to take advantage of the interest rate differentials. Now that’s like a cherry on top of a sundae!