I Would Like To Share Something Very Important With You:
A lot of traders are looking at the Yen crosses because they can move alot. Here's how they move:
The price of G/J = U/J X G/U
The price of E/J = U/J X E/U
ETC
So the way it works is very simple-the $ has to be gaining on the GBP while losing on the JPY or vice versa to catch the really big moves in the G/J. Same with the other crosses.
Everyone should sit down themselves and play with the permutations, but here's a couple:
Let's say you want to trade the G/J from a $+ NFP Here's what happens:
U/J and G/U will move inversely (as they do most of the time anyway) as the $ strengthens. However the G/J WILL LOSE PIPS on the move if let's say the $ gains 100 pips against the G, but only 40 on J.
If G/U and U/J lose and gain the same # of pips-you'll get less pips on the G/J then you would have trading either the G/U or U/J.
If the $ gains more vs. the J then vs. the G-you'll get more pips trading the G/J then then G/U or U/J.
You must use a lot of discretion to trade the G/J or any of the crosses in this situation because mathematically speaking, the crosses can gain OR lose pips on a $+ OR $- NFP (Or any other US news report for that matter). Also, the crosses will gain less pips if the $ move is equal against the J and its counterpart as compared to trading the counterpart (or U/J) itself. The G/J will gain more pips if the move is bigger vs the J then the G. An example of this is below.
Now look at the daily charts for FEB 27-you'll see the G/U and U/J moved together (down). That's rare and that's why G/J lost a much larger # of pips then either-simple arithmatic. When the markets crashed-they sold the $ vs Yen and bought the $ vs GBP. The same thing happened with all the crosses. Or you can look at it this way: The unwinding of carry trades involved the simultaneous selling of the $ vs. the JPY and buying of the $ vs. its counterpart (GBP,EUR etc). The "winding" of carry trades involves the exact opposite.
So if you want the big pips on the G/J or any of the crosses-you need to trade when the $ is simultaneously moving the opposite way vs the Yen then it is on its counterpart. For example the BoJ looks to be raising rates at the same time that the BoE looks to be holding or cutting-like a day when Tokyo CPI is up and UK CPI is down. Here's an example:
Tokyp CPI comes put strong and U/J goes from 118.50 to 117.75
UK CPI comes out weak and G/U goes from 1.9650 to 1.9600
G/J start of day price 118.50 x 1.9650 = 232.85
G/J end of day price 117.75 x 1.9600 = 230.79
Difference = -206 pips for the G/J
There are many other things to be aware of as well. Going back to the example when the $ is set to strengthen you must be aware of what i'm going to explain in order to have a better idea of how the cross you are trading (G/J for my examples) is going to move.
G/U is a smaller number then U/J, e.g. 1.960 is a smaller number then 118.50. In percentage, the same move in pips represents a larger percentage for the G/U then the U/J.
Now in the case when the $ is set to strengthen against both GBP and JPY-if the $ strengthens 100 pips vs the GBP but only 40 on the JPY-the G/J will LOSE PIPS.
Start of day G/U 1.9650
Start of day U/J 118.50
Start of day G/J 232.85 (U/J x G/U)
End of day G/U 1.9550
End of day U/J 118.90
End of day G/J 232.44 G/J has lost 41 pips on a day of $+ sentiment.
Let's see what happens the other way ($ gaining more pips on Jpy then GBP)
Start of day G/U 1.9650
Start of day U/J 118.50
Start of day G/J 232.85 (U/J x G/U)
End of day G/U 1.9630
End of day U/J 119.50
End of day G/J 234.57- G/J gains 172 pips on a day of $+ sentiment.
So again, you must use a lot of discretion to trade a JPY cross directly off a US news report because it can gain OR lose with the same $ sentiment and it will gain less pips on an equal move vs the $'s counterpart.
From a fundamental standpoint, when could a cross lose pips with the same $+ sentiment?
Let's say there's been some recent JPY+ news (like personal consumption, which is the number everyone is looking at). We know that due to the Japanese deflationary situation and from what the BoJ has said they definately want to be able to raise rates and will do so if the data allows it. On a day with a strong NFP, the $ would likely gain on the JPY but the gain could possibly be muted.
Now let's say at the same time, knowing that the BoE doesn't want to raise rates further (because they've said they expect inflation to go down this year) some recent GBP- news has come out (like a lower CPI or retail sales number). In this case, the $'s gain against the GBP might be amplified.
In this situation a cross might very well lose pips because the $'s gain against the GBP will be greater then its gain agaisnt the JPY.
Much more on this to come.
A lot of traders are looking at the Yen crosses because they can move alot. Here's how they move:
The price of G/J = U/J X G/U
The price of E/J = U/J X E/U
ETC
So the way it works is very simple-the $ has to be gaining on the GBP while losing on the JPY or vice versa to catch the really big moves in the G/J. Same with the other crosses.
Everyone should sit down themselves and play with the permutations, but here's a couple:
Let's say you want to trade the G/J from a $+ NFP Here's what happens:
U/J and G/U will move inversely (as they do most of the time anyway) as the $ strengthens. However the G/J WILL LOSE PIPS on the move if let's say the $ gains 100 pips against the G, but only 40 on J.
If G/U and U/J lose and gain the same # of pips-you'll get less pips on the G/J then you would have trading either the G/U or U/J.
If the $ gains more vs. the J then vs. the G-you'll get more pips trading the G/J then then G/U or U/J.
You must use a lot of discretion to trade the G/J or any of the crosses in this situation because mathematically speaking, the crosses can gain OR lose pips on a $+ OR $- NFP (Or any other US news report for that matter). Also, the crosses will gain less pips if the $ move is equal against the J and its counterpart as compared to trading the counterpart (or U/J) itself. The G/J will gain more pips if the move is bigger vs the J then the G. An example of this is below.
Now look at the daily charts for FEB 27-you'll see the G/U and U/J moved together (down). That's rare and that's why G/J lost a much larger # of pips then either-simple arithmatic. When the markets crashed-they sold the $ vs Yen and bought the $ vs GBP. The same thing happened with all the crosses. Or you can look at it this way: The unwinding of carry trades involved the simultaneous selling of the $ vs. the JPY and buying of the $ vs. its counterpart (GBP,EUR etc). The "winding" of carry trades involves the exact opposite.
So if you want the big pips on the G/J or any of the crosses-you need to trade when the $ is simultaneously moving the opposite way vs the Yen then it is on its counterpart. For example the BoJ looks to be raising rates at the same time that the BoE looks to be holding or cutting-like a day when Tokyo CPI is up and UK CPI is down. Here's an example:
Tokyp CPI comes put strong and U/J goes from 118.50 to 117.75
UK CPI comes out weak and G/U goes from 1.9650 to 1.9600
G/J start of day price 118.50 x 1.9650 = 232.85
G/J end of day price 117.75 x 1.9600 = 230.79
Difference = -206 pips for the G/J
There are many other things to be aware of as well. Going back to the example when the $ is set to strengthen you must be aware of what i'm going to explain in order to have a better idea of how the cross you are trading (G/J for my examples) is going to move.
G/U is a smaller number then U/J, e.g. 1.960 is a smaller number then 118.50. In percentage, the same move in pips represents a larger percentage for the G/U then the U/J.
Now in the case when the $ is set to strengthen against both GBP and JPY-if the $ strengthens 100 pips vs the GBP but only 40 on the JPY-the G/J will LOSE PIPS.
Start of day G/U 1.9650
Start of day U/J 118.50
Start of day G/J 232.85 (U/J x G/U)
End of day G/U 1.9550
End of day U/J 118.90
End of day G/J 232.44 G/J has lost 41 pips on a day of $+ sentiment.
Let's see what happens the other way ($ gaining more pips on Jpy then GBP)
Start of day G/U 1.9650
Start of day U/J 118.50
Start of day G/J 232.85 (U/J x G/U)
End of day G/U 1.9630
End of day U/J 119.50
End of day G/J 234.57- G/J gains 172 pips on a day of $+ sentiment.
So again, you must use a lot of discretion to trade a JPY cross directly off a US news report because it can gain OR lose with the same $ sentiment and it will gain less pips on an equal move vs the $'s counterpart.
From a fundamental standpoint, when could a cross lose pips with the same $+ sentiment?
Let's say there's been some recent JPY+ news (like personal consumption, which is the number everyone is looking at). We know that due to the Japanese deflationary situation and from what the BoJ has said they definately want to be able to raise rates and will do so if the data allows it. On a day with a strong NFP, the $ would likely gain on the JPY but the gain could possibly be muted.
Now let's say at the same time, knowing that the BoE doesn't want to raise rates further (because they've said they expect inflation to go down this year) some recent GBP- news has come out (like a lower CPI or retail sales number). In this case, the $'s gain against the GBP might be amplified.
In this situation a cross might very well lose pips because the $'s gain against the GBP will be greater then its gain agaisnt the JPY.
Much more on this to come.