The euro and yen are the most traded currencies after the US dollar.
Similarly to the US dollar, the euro and yen are held as reserve currency by other countries.
As a result, the euro and yen crosses are the most liquid outside of the dollar-based “majors” in the world.
Trading the Euro Crosses
EUR/JPY, EUR/GBP, and EUR/CHF are the most popular EUR crosses.
News affecting the euro or the Swiss franc will be felt more strongly in EUR crosses than in EUR/USD or USD/CHF.
The news from the United Kingdom will have a significant impact on the EUR/GBP.
Surprisingly, US news influences the movement of the EUR crosses. The impact of US news on GBP/USD and USD/CHF is significant.
This has an impact not just on the GBP and CHF versus the USD, but also on the GBP and CHF against the EUR.
A significant rise higher in the USD tends to result in greater EUR/CHF and EUR/GBP, and the contrary is true.
Confused? Ok ok… Let us dissect this.
Assume the United States releases positive economic data, prompting the USD to soar.
This suggests that GBP/USD will fall, lowering the value of the GBP. At the same time, the USD/CHF rate would rise, causing the CHF to fall in value.
The fall in the value of the pound would then force the EUR/GBP to climb (since traders are selling off their GBP).
The fall in the value of the CHF would force the EUR/CHF to climb (since traders are selling off their CHF).
This would likewise work in the opposite manner if the United States showed bad economic data.
Trading the Yen Crosses
The JPY is one of the most often traded cross currencies, and it is traded against virtually every other major currency.
According to the latest Triennial Central Bank Survey from the Bank for International Settlements, EUR/JPY has the biggest volume of JPY crosses.
The GBP/JPY, AUD/JPY, and NZD/JPY carry trade currencies have the biggest interest rate differentials against the JPY. When trading JPY currency cross pairs, keep the USD/JPY in mind at all times.
When important levels on this pair are breached or resisted, it tends to spill over into the JPY cross pairs.
For example, if the USD/JPY crosses above a critical resistance level, it indicates that traders are selling JPY.
This could cause the JPY to fall in value against other currencies. As a result, EUR/JPY, GBP/JPY, and other JPY crosses may climb as well.
This currency cross has grown in popularity in recent years, becoming highly associated with the price of oil.
Canada is the second-largest owner of oil reserves, and the surge in oil prices has helped the country.
Japan, on the other hand, is largely reliant on oil imports. In fact, because Japan has essentially no natural oil reserves, it imports nearly 99% of its crude oil.
These two factors have resulted in an 87% positive association between the price of oil and the Canadian dollar/Japanese yen.
Next Lesson: How to Use Currency Crosses to Trade the Majors