Why such strong correlation of pairs? -
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thread: Why such strong correlation of pairs?

  1. #11
    Not certain if this is exactly what you're searching for, but distinct currencies control all of the time, and a few currencies will briefly predominate. By way of instance, USD is your leader, so if USD is going up, all pairs against USD will return. EUR is quite powerful, so it will always predominate. CAD is weaker, so you are going to see some pairs bullish CAD and many others bearish CAD.

    AUD is a weaker currency because Australia's GDP is lower than the other major pairs, but by means of the Western economy as it is at this time, and Australia together with the maximum interest rate of the majors, and Australia's economy closely tied into an increasing China, AUD spent the last couple of years dominating over all pairs, including USD, for this.

    Hope that's exactly what you were looking for.

  2. #12
    I think we might be at risk of going off topic but I must deal with a few of what you said.

    Should I market 1 Billion EUR against the USD, the price is much more inclined to go down since I claim, instead of up as you claim. I am selling into BID's that are placed by liquidity providers, and I am only able to market all 1 Billion EUR if someone is prepared to buy from me at fixed prices. The BID's are in different price levels, and it is certain I wouldn't be able to market all 1 Billlion in precisely the exact same price. 100 Million would be sold by me in the best current BID price. That BID is consumed then I could just sell my following 100 Million in the following BID which can be 1 pip lower. I would continue to consume these BIDS all of the way down price levels until I had sold all 1 Billion EUR I wanted to market. At the time, the BID from the market for other people to use, could be 10 or even 20 pips reduced from when I started my selling.

    If I am a thick vendor, and I outweigh the buyers in my volume, the price is going to drop on the EURUSD. It has to.

    As for you saying that when I market the EURJPY pair I am actually buying the EUR AND selling the EUR, what is the point? Imagine going in to a grocer shop to buy an apple, and paying for it using a apple....what would be the point? I would be left with precisely the exact same thing as I had before I started the transaction, as could the soul on the side of my commerce. Currency pairs are a market like any other, where we exchange one item for another item. Should I buy EUR from the EURJPY pair, I must be selling the Yen. It is the currency exchange and I am buying one currency for another.

    I think maybe we're both completely misunderstanding the other's meaning which is leading to our confusion. You actually answered my question in your first article, so I am really grateful to you. Surprisingly I had never heard of the Trade Weighted Index. The trade Index explains precisely how and why the buying or selling of a currency at 1 pair, will instantly impact the rest of the pairs. I've heard a whole lot on that front, so thank you, and apologies if I've confused the issue by not stating my question clearly enough.

  3. #13
    Junior Member Oxster10's Avatar
    7
    Im glad we got that covered from the start. . Anyways I would love to clarify why when u buy the EUR from the EUR/JPY and market u are in fact selling the EUR.

    It's also advisable to look up bull trap. (im going to create random figures just for the excuse ). Lets say you travelled long AUD/USD price at 1.10. . That meanings you purchased in expect that the AUD will grow and theres a flooring (s/r) at 1.05. . The purchase price starts to drop. . Its at 1.06 and you think that if it goes any lower. . Its gonna hit at your stop loss and you are out. .

    You put your stop loss at 1.05 at a normal s/r. . And so did many other traders. . And big associations. . So what they do is. . Inject millions and millions. . Theres an instance of the company west farmers injecting into the USD such as 600m. . Forcing the price to go down. . The purchase price drops below 1.05 and hits your stop loss along with the countless other traders prevent loss aswell. . then. . They counter trade. . They inject more money into the AUD (long)

    what would you think happens? It strikes your stop losses inducing you and another traders to automatically sell (remember you moved long. . Un purchased AUD)

    which compels the AUD to grow.

    You see what I mean now? Sorry if its uncertain I typed it as I can

  4. #14
    I think I understand what you were getting at now. Yes, I agree, in a speculative trade I will initially buy a currency, and later sell the identical currency (or vice versa). I misinterpreted your meaning by thinking you were claiming that in a transaction I am buying and simultaneously selling the currency: at the exact same precise moment.

    However, I was speaking about a single transaction. It's very simple for us retail traders to get in to the mind set of thinking our transactions are only one transaction because we always have to enter and exit a trade that involves first buying and later selling the identical currency (or vice versa). However, our trade's open and close are. That is just one transaction which is completed instantly, when I enter a trade that is speculative. I buy the EUR and simultaneously sell the JPY....end of deal and there's absolutely no reason why I would ever have to exchange the currencies back again in the future. If at a later date I opted to exchange the currencies back and this time market my EUR and buy JPY, that is a transaction, totally unrelated to my first, although in my mind I am closing one trade.

    As is so often true, we were both interpreting the other persons remarks out of context for how they were supposed. I think we have got there

  5. #15
    Junior Member agomwz.69's Avatar
    4
    I believe I know what you were getting at now. Yes, I agree, in a speculative trade I will first buy a currency, and sell the same currency (or vice versa). I misinterpreted your meaning by believing you were somehow claiming that in one trade I am buying and simultaneously selling the currency: at the exact same exact moment.

    However, I was speaking about a single transaction. It's extremely easy for us retail traders to get into the mind set of believing our trades are only 1 trade because we always need to enter and depart...
    Interesting point. I wonder if the distinction lies in the broadly correlative effect of speculative waves instead of commercial buys (state by an exporter). In that context, index weighted adjustments would make sense.

    Notwithstandingthis is a very practical discussion. It has got me asking questions.

  6. #16
    by way of instance, when the EUR is weakening, it is going to fall simultaneously against the USD, CHF, JPY, GBP etc.. On its face this sounds absolutely obvious, but using a little more thought, I can not know why or the mechanisms.
    Your comprehension of currency valuation is flawed most likely due to reading a few of the moronic things that so-called experts about forums such as these have posted.

    They don't have any idea what the hell they're talking about.

    Actually, it's a very simple philosophy.

    If one currency contrasts, a price pair will move in favour of its opposing currency. Does not matter what currency it's. If this doesn't occur, then that means both currencies in that pair are weakening at the same moment.

    Simple as that. There are no other things that influence this phenomenon.

    Individuals who claim anything differently are ignorant idiots that likely suck at trading as well, I would suppose.

  7. #17
    What I am trying to understand is why (or even more importantly how) selling/buying on a single pair would impact another pair.

    When I was a major participant and that I offered 1 Billion Euro in exchange for Yen causing a quick fall in the EURJPY price as I have the available BID's from the market, why could the EURUSD price also instantly drop significantly once I did not reach that pair? Does this make more sense concerning my query?

    There's no major selling of EUR against the USD, and yet the EURUSD pair will most certainly drop in unison with all the EURJPY. This...
    Hello flotsom:

    By no means do I consider myself a currency trading expert; it's just a fascinating hobby for me. But, I do know your question over and it made me think of Triangular Arbitrage and High-Frequency currency trading by banks and other institutions. Their super-computers are continuously on the lookout for any loopholes in a currency triangle (or perhaps in more-complexly shaped arbitrages outside a triad). Any disrepancies from a sizable trade throwing a pair out will immediately become rectified by high end arbitrageurs.

    Http://en.wikipedia.org/wiki/Triangular_arbitrage

    There are different factors, to be certain, but exactly what I said above has to be a significant contributor to the reconciliation of associated currency pair movements.

    Good fortune being a retail trader however. It's a pool of sharks out there!

  8. #18
    Junior Member Hobbit's Avatar
    3
    ... Triangular Arbitrage...
    Wow, it amazes me the Amount of Articles it took before Somebody gave the correct answer

  9. #19
    Your understanding of currency valuation is flawed probably due to reading some of those moronic things that so-called experts around forums such as these have posted.

    They don't have any clue what the hell they are talking about.

    In reality, it is a really simple philosophy.

    If a single currency contrasts, a price pair will move in favor of its opposing currency. Does not matter what currency it is. If this does not happen, then that means both currencies in that pair are weakening at precisely the same time.

    Simple as that. There are no other factors...
    It's not that my understanding of currency valuation is flawed as such, more I clearly did not pose my initial question in a fashion which correctly reflected what I wanted to understand. My fault completely for confusing the issue.

    My question is nothing to do with the connection between currencies in one pair. I concur with you that if a currency contrasts, the pair will move in favour of the opposing currency in that pair. My question isn't even about the association between currencies in the wider sense.

    My question was concerning the mechanics of why/how other pairs would also move even though the buying or selling was happening at a different pair. When there's heavy selling at the EURJPY pair, why would the EURUSD even the USDCHF move with no direct heavy selling in these pairs? And the response was given to me at the very first reply concerning the trade weighted index.

    I realise on forums there are a lot of axioms thrown about such as it is all to do with demand and supply etc, but very few people ever discuss exactly what that means or how it is translated into the prices we see on a quote board in real time. It's a bit like a car. Most men and women know that they function according to a combustion motor. If someone asked this question, how can a car work, they'd be bombarded that it is all about the motor. But very few people would really have the ability to tell you exactly the way the motor functions from the point of pressing the start button all the way down.

    That was actually the gist of my question; I wanted to understand how the engine worked. I wanted to understand price changes could appear in the USDCHF though the heavy activity was taking place at the EURJPY that on the face of it is unrelated. Prices can move with no buying or selling . This is evident to anyone with a small amount of wisdom and expertise, and it was clear to mepersonally, but I wanted to know exactly how and why. I believe I finally have the answer together with all the trade weighted index, and with more study and research I will have a greater understanding and knowledge.

    As I said in my opening post, the question was deeper than many people would give it credit for, but I obviously did not word it in a way that could be readily interpreted by other people. That is my fault for not distributing my thoughts properly.

  10. #20
    I really do know your query above and it immediately made me think of Triangular Arbitrage and High-Frequency currency trading by banks and other large institutions.
    Thank you for the input. That will certainly give me something else. I have discovered a lot about triangular arbitrage but never paid any attention to it. I will find that combined with the comprehension of the workings of the trade weighted index, this kind of high frequency trading of arbitrage situations could effect prices on other pairs.

    As time passes I am amazed at how little I really know and comprehend. I don't know whether to be worried or amused that I've been able to exchange for a living for 3 years, though I don't really know how the market I exchange works. That is either indiive of the rationale that simple works best for traders, or...I have had a fantastic streak of good luck that could come crashing to a spectacular ending. For the sake of my sanity I think I'll go with the former.

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