eToro – Forex Trading Forum

[Tropezienne]

GBP/JPY

This is the most active of all the currency cross pairs. The GBP/JPY cross can move 300 pips or more in one day. This is not a beginner's pair ! But if you like volatility – then go for it!

You will be offered a spread of between 6 to 10 pips and can expect to trade a range of 150 – 200 pips during the course of an average trading day.

The GBP/JPY pair is affected by the difference between the interest rates of the Bank of England (BoE) and the Bank of Japan (BoJ), by the growth differentials between the UK zone and Japan zone and by oil prices because Japan imports 99% of its oil.

To trade this pair use both Technical and Fundamental Analysis, watch the economic news from both the United Kingdom and the Japanese zone.

Don't forget – the GBP/JPY is an extremely volatile pair and is not recommend to trade if you are a novice in currency trading.

[Tropezienne]

I'm not going to be too advanced here – I can't because I am approaching this with a beginner's knowledge ! So I am just going to look at the two biggest commodities – Crude Oil and Gold and their correlation to the three currency pairs that have the highest correlations with them : the Canadian dollar (CAD), Australian dollar(AUD), and the New Zealand dollar(NZD).

There is a high correlation between the AUD/NZD and the NZD/USD and the fluctuations in the price of Gold. Whereas the USD/CAD is highly correlated to the fluctuations of the price of Crude Oil.

When making trading decisions in the commodity pairs, it might be a good idea to take a look at the correlated commodities because it can help to predict future up or down movements. For example, If you think gold will keep rising, it might be a good strategy to buy the Australian dollar since it's normal correlation to Gold is around 80% positive.

[Tropezienne]

The AUD/USD Commodity Pair

Australia is the world's third largest exporter of gold and because of this the Australian dollar has an almost permanent 80% positive correlation with this commodity. If your reading of the fundamental analyses lead you to conclude that the price of gold will continue to increase, you should consider trading in a commodity-based economy like Australia because if gold rises, the Australian Dollar is 80% certain to follow this trend.

Trading this pair :

1) So, as seen, if you think Gold will keep rising, a good strategy would be to buy the Australian dollar because it's 80% positive correlation to Gold.

2) Having established the high correlation to gold of the AUD/USD a useful exercise is to compare both the AUD/USD currency charts and gold commodity charts in order to predict future moves. EG : if gold breaks above an important resistance level but AUD/USD didn't break a resistance level yet, the high correlation suggests that AUD/USD is very likely to break above also. This is because gold tends to lead the move ahead of the Australian dollar.

[Tropezienne]

The NZD/USD Commodity Pair

The state of New Zealand's economy is closely tied to the state of the Australia's economy. Because of this the New Zealand dollar and the Australian dollar had a 92% positive correlation over the four years 2003-2006 it is now about 90%. The New Zealand dollar has an even stronger correlation – approximately 88% - with gold than the AUD/USD. If your analysis reaches the conclusion that gold will continue to increase in price you could try trading forex in a commodity-based economy like New Zealand because (as with the Australian dollar) if the price of gold rises, the New Zealand dollar is very likely to follow it's lead.

Trading this pair :

1) So, as seen, if you research and preparation indicates that the price of gold will keep rising, it could be a good strategy to buy the New Zealand dollar because of it's highly positive correlation to gold.

2) Because this pair is so highly correlated to gold (together with the AUD/USD), you could do what I suggested with the AUD and compare both the NZD/USD forex charts and and the gold commodity charts in order to predict future moves of the New Zealand dollar. EG: if gold breaks above an important resistance level and NZD/USD has not yet broken a resistance level, you can be fairly certain that the the NZD/USD is highly likely to break above soon. As with the Australian dollar, gold tends to lead the move ahead of NZD/USD.

[Tropezienne]

The USD/CAD Commodity Pair

The USD/CAD is the single biggest beneficiary of rising oil prices. Canada is the biggest exporter of crude oil to the US and will experience a boost to its economy when oil prices increase. So, if the price of crude oil rises the Canadian dollar is highly likely to follow. The correlation between crude oil prices and the Canadian dollar is approximately 80%.

Trading this pair :

1) As can be seen from the brief analysis above, if you come to the conclusion that the price of oil will rise it would be a good idea to buy the Canadian dollar because it's 80% positive correlation to crude oil prices.

2) Because the USD/CAD pair tends to be highly correlated to crude oil, do what you did with the Australian and New Zealand dollars and gold – ie: compare the CAD forex charts with the crude oil commodity charts in order to predict future moves. EG: if the oil price breaks above an important resistance level and USD/CAD hasn't yet broken a resistance level it is highly likely that it will do so soon. Again, this shows how commodity prices (in this case crude oil) tend lead moves ahead of currency pairs, in this case the USD/CAD.

[harelei]

Thank you so much for all the information so far... I have just entered the world of forex, and am still practicing on the demo account. After a 3 day trial of paid signals I decided to do without them (for the time being), so I'm feeling better about making that choice! I also prefer the trade box, and will check out the expert mode now. Your 'novice' explanations are in a language that I understand, and I look forward to reading further posts from you. Thank you again for sharing what you have learned so far; I believe that you will enjoy many successful trades in return...

[Tropezienne]

Hello Again Harelei - I saw your post in response to the signal scammer and have responded to you on that thread.

I'd like to take a second opportunity to welcome you - it is always great to have a new member who is willing to contribute and to share their experiences.

I'm pleased that you are getting something out of my posts. I am not a seasoned trader - I started last March. I found that a lot of material about forex simply gave out too much information.

I'm a language teacher by training and a writer by inclination - and I have written many teaching materials over the years. The key to the best training manual is simplicity - combined with a patient and methodical approach by the learrner.

So all my forex threads on this forum are aimed at the begginner and - I hope - say just enough to move them naturally onto the next stage.

Have fun here !

[GregorAnton]

What is your takeon Usd/Cad?

[realincome]

I think this is a great post for beginners and more experienced traders alike, we often hear things such as look at fundamental analysis as well as technical, but what the heck they mean who knows.

Well now we do, thanks to you.

Very good info and well done to you for this.