by Abe Cofnas
Without a doubt the EURUSD and GBPUSD, as currency pairs, receive a great deal of attention by Forex traders. Each provide tradable patterns almost every day.
Why some traders prefer trading one of these pairs versus the other is almost a matter of personal preference. Both pairs will reflect global sentiment regarding the dollar. As a result, it is usually the case that they will share the same trend patterns. If world reaction to economic news is positive for the US economy, as a general rule, both the Euro and the GBP will tend to weaken. The chart below, for example, shows how the EURUSD and the GBP have moved on the 1 hour pattern. Notice how similar the patterns are. The hour charts below show that both pairs provided a similar reaction to the Nov 4th economic release of the non-farm payroll report.
Clearly, it is hard to develop an argument of which pair is better to trade. But there is more that the Forex trader can do with these pairs. Forex traders can generate totally new trading opportunities by dropping the US dollar component of the pair and, thereby, creating a Crosspair known as the EURGBP Before we take a look at the EURGBP chart, let's try to understand what makes this pair a good source of trades, particularly, in the coming year. The best way to understanding this Crosspair is to realize that it generates a picture of the battle between two different economies- the Eurozone vs. the British economy. The Eurozone countries experience different levels of economic growth and expectations of growth than that of Great Britain. As a result, there is a constant flow back and forth of capital between these regions and this flow results in frequent range like behavior and price swings as can be seen in the day chart below.
We also see that even on the hour time interval, swings occur in this pair that offer 40 to 100 pip moves.
Now is particularly a good time to become familiar with this pair. Europe, after two and a half years of no increase in interest rates, has signs of a turnaround in its economy. Business sentiment is up and the European Central Bank's President Trichet has indicated that the ECB is willing to raise rates at any time to control a potentially emerging inflation. He recently said, "A rate hike would be justified by the necessity to deliver price stability over time." The ECB's next meeting is on December 1, but don't be surprised if it moves to increase rates before then. On the other hand, the British economy has slowed down and its interest rates have, in fact, been lowered. We are also at a probing point technically, as the day chart patterns are forming a triangle which is a prelude to a breakout.
Fundamentally, we may also be at a turning point as Europe looks for signs of recovery. Quite important are several dates coming up. The Eurozone's leading economy, Germany, is showing signs of growth resuming. Manufacturing orders rose more than expected in September on stronger export demand and increased spending by German companies at home. In fact, orders advanced 2.8 percent from August levels. In contrast, at the same time, Britain is demonstrating economic weakness. New orders placed by UK factories were more marked in the past three months than at any point for the last two years. Also, Britain's housing boom is over. Forex traders need to closely watch what happens in upcoming economic releases.
Without a doubt the EURUSD and GBPUSD, as currency pairs, receive a great deal of attention by Forex traders. Each provide tradable patterns almost every day.
Why some traders prefer trading one of these pairs versus the other is almost a matter of personal preference. Both pairs will reflect global sentiment regarding the dollar. As a result, it is usually the case that they will share the same trend patterns. If world reaction to economic news is positive for the US economy, as a general rule, both the Euro and the GBP will tend to weaken. The chart below, for example, shows how the EURUSD and the GBP have moved on the 1 hour pattern. Notice how similar the patterns are. The hour charts below show that both pairs provided a similar reaction to the Nov 4th economic release of the non-farm payroll report.
http://www.forexfactory.com/pics/art...20051109_1.gif
http://www.actionforex.com/images/st...20051109_2.gif
Clearly, it is hard to develop an argument of which pair is better to trade. But there is more that the Forex trader can do with these pairs. Forex traders can generate totally new trading opportunities by dropping the US dollar component of the pair and, thereby, creating a Crosspair known as the EURGBP Before we take a look at the EURGBP chart, let's try to understand what makes this pair a good source of trades, particularly, in the coming year. The best way to understanding this Crosspair is to realize that it generates a picture of the battle between two different economies- the Eurozone vs. the British economy. The Eurozone countries experience different levels of economic growth and expectations of growth than that of Great Britain. As a result, there is a constant flow back and forth of capital between these regions and this flow results in frequent range like behavior and price swings as can be seen in the day chart below.
http://www.forexfactory.com/pics/art...20051109_3.gif
We also see that even on the hour time interval, swings occur in this pair that offer 40 to 100 pip moves.
http://www.forexfactory.com/pics/art...20051109_4.gif
Now is particularly a good time to become familiar with this pair. Europe, after two and a half years of no increase in interest rates, has signs of a turnaround in its economy. Business sentiment is up and the European Central Bank's President Trichet has indicated that the ECB is willing to raise rates at any time to control a potentially emerging inflation. He recently said, "A rate hike would be justified by the necessity to deliver price stability over time." The ECB's next meeting is on December 1, but don't be surprised if it moves to increase rates before then. On the other hand, the British economy has slowed down and its interest rates have, in fact, been lowered. We are also at a probing point technically, as the day chart patterns are forming a triangle which is a prelude to a breakout.
Fundamentally, we may also be at a turning point as Europe looks for signs of recovery. Quite important are several dates coming up. The Eurozone's leading economy, Germany, is showing signs of growth resuming. Manufacturing orders rose more than expected in September on stronger export demand and increased spending by German companies at home. In fact, orders advanced 2.8 percent from August levels. In contrast, at the same time, Britain is demonstrating economic weakness. New orders placed by UK factories were more marked in the past three months than at any point for the last two years. Also, Britain's housing boom is over. Forex traders need to closely watch what happens in upcoming economic releases.
- Third-quarter GDP data comes on Nov. 15; the German IFO business survey on Nov. 24; and the European Commission November economic sentiment survey on Nov. 30,
- and PMI manufacturing survey the Dec 1.
The convergence of fundamentals and technicals provides fertile ground for trading opportunities in this pair. While most traders are looking to the Majors, it's a good time to watch the Crosspair.