Trading the USD Crosses

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Author: Martin Penev

Trading the USD crosses can be an exciting and potentially profitable endeavor for forex traders. The USD crosses refer to currency pairs that involve the U.S. dollar as one of the currencies, such as EUR/USD, GBP/USD, USD/JPY, and many others. These pairs offer unique trading opportunities, as they represent the interactions between the world’s most widely traded currency and other major global currencies. In this article, we will explore various strategies and insights to help traders navigate the complexities of trading the USD crosses effectively.

Understanding the USD Crosses

Before diving into trading strategies, it’s crucial to develop a comprehensive understanding of the USD crosses. Each currency pair reflects the exchange rate between two currencies, where the first currency is the base currency and the second currency is the quote currency. When trading USD crosses, the U.S. dollar is the base or quote currency.

When the USD is the Base Currency:

When the USD is the base currency in a currency pair, it means that the exchange rate is expressed in terms of how much of the quote currency is required to purchase one unit of the USD. In this case, the value of the USD is being measured against the quote currency.

Example: USD/CAD (US Dollar as the base currency and Canadian Dollar as the quote currency):

If the USD/CAD exchange rate is 1.2500, it means that 1 US dollar is equivalent to 1.2500 Canadian dollars. If you expect the USD to strengthen against the Canadian dollar, you might consider buying the USD/CAD pair. Conversely, if you anticipate the Canadian dollar to strengthen, you may consider selling the pair.

When the USD is the Quote Currency:

When the USD is the quote currency, it means that the exchange rate is expressed in terms of how much one unit of the base currency is worth in USD. In this case, the value of the quote currency is being measured against the USD.

Example: EUR/USD (Euro as the base currency and US Dollar as the quote currency).

If the EUR/USD exchange rate is 1.2000, it means that 1 euro is equivalent to 1.2000 US dollars. If you believe the euro will appreciate against the US dollar, you might consider buying the EUR/USD pair. Conversely, if you expect the US dollar to strengthen, you may consider selling the pair.

Factors Affecting USD Crosses

Several fundamental factors influence the performance of the USD crosses. Traders need to stay updated with these factors to make informed trading decisions.

Key factors impacting the USD crosses include:

  1. Economic Indicators: Pay attention to economic indicators such as GDP, inflation rates, interest rates, employment data, and consumer sentiment. Strong economic data from the United States often leads to a stronger U.S. dollar, while weak data may result in a weaker dollar.
  2. Central Bank Policies: Monitor the monetary policies of the U.S. Federal Reserve (Fed) and other central banks. Interest rate decisions, statements, and quantitative easing measures can significantly impact the USD crosses.
  3. Geopolitical Events: Geopolitical events, such as trade disputes, political uncertainties, or global economic developments, can influence the value of the U.S. dollar and its crosses. Stay informed about geopolitical news and its potential impact on the currency markets.

Our Traders have the unique AI-powered Economic Calendar for this purpose and we strongly recommend you use it to your advantage in that regard.

Trading Strategies for USD Crosses

  1. Trend Following: Identify and follow established trends in USD crosses. Use technical analysis tools such as moving averages, trendlines, and indicators like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD) to determine the direction of the trend. Enter trades in the direction of the prevailing trend for potentially higher probability trades.
  2. Breakout Trading: USD crosses often experience periods of consolidation followed by breakouts. Look for chart patterns like triangles, flags, or rectangles that indicate potential breakouts. Enter trades when the price breaks out of these patterns, accompanied by significant volume and strong momentum.
  3. Range Trading: When USD crosses trade within well-defined ranges, traders can employ a range trading strategy. Identify support and resistance levels and execute trades when the price approaches these levels. Buy near support and sell near resistance, aiming to profit from price oscillations within the range.
  4. Fundamental Analysis: Stay abreast of economic news and analyze the impact of key economic indicators on the U.S. dollar. Positive economic data often strengthens the USD, while negative data can weaken it. Combine fundamental analysis with technical analysis to enhance trading decisions.
  5. Risk Management: Implement sound risk management practices to protect capital. Set appropriate stop-loss orders to limit potential losses. Consider using trailing stops to lock in profits as the trade moves in your favor. Avoid risking more than a predetermined percentage of your trading capital on a single trade.

Most volatile USD pairs historically

When considering the most volatile USD crosses historically, there are a few currency pairs that have shown significant volatility and offer potential opportunities for traders.

It’s important to note that historical volatility does not guarantee future volatility, but it can provide insights into past market behavior.

Here are a couple of examples of historically volatile USD crosses:

  1. USD/AUD (US Dollar vs. Australian Dollar): The USD/AUD pair is known for its volatility, influenced by factors such as commodity prices (particularly gold and iron ore), interest rate differentials between the United States and Australia, and economic data from both countries. Australia’s close ties to the Asian market can also impact the pair’s volatility.
  2. USD/NZD (US Dollar vs. New Zealand Dollar): The USD/NZD pair is another USD cross that can exhibit significant volatility. Economic data from New Zealand, such as dairy prices, interest rate decisions by the Reserve Bank of New Zealand, and global risk sentiment, can affect the exchange rate. The pair’s volatility can present opportunities for traders.
  3. USD/CHF (US Dollar vs. Swiss Franc): While the USD/CHF pair is generally considered less volatile compared to some other USD crosses, it can still experience notable price movements. The Swiss franc is often seen as a safe-haven currency, and geopolitical events or risk-off sentiments in the market can lead to increased volatility in this pair.
  4. USD/MXN (US Dollar vs. Mexican Peso): The USD/MXN pair can exhibit significant volatility due to factors such as economic data from Mexico, oil prices (Mexico being a major oil exporter), political developments, and trade relations between Mexico and the United States. Traders interested in emerging market currencies may find opportunities in this pair.
  5. USD/ZAR (US Dollar vs. South African Rand): The USD/ZAR pair has historically exhibited high levels of volatility. The South African rand can be influenced by various factors, including commodity prices (particularly gold and platinum), political events, and economic conditions within South Africa. The pair can experience sharp price movements, presenting trading opportunities for those who are comfortable with volatility.
  6. USD/BRL (US Dollar vs. Brazilian Real): The USD/BRL pair is another USD cross known for its historical volatility. Brazil’s economy is impacted by factors such as commodity prices (specifically oil and agricultural products), political developments, and fiscal policies. These factors can lead to significant fluctuations in the exchange rate between the US dollar and the Brazilian real.

It’s worth noting that while volatile currency pairs can offer opportunities for traders, they also carry increased risks. High volatility can lead to rapid price swings, making risk management and proper position sizing crucial when trading such pairs.

Here is a general estimation of the yearly average annual pip movements for some of the USD major crosses taken historically over the past 5 years:

  1. EUR/USD: The EUR/USD pair is known for its relatively lower volatility compared to some other currency pairs. On average, it has historically shown annual pip movements ranging between 800 and 1,200 pips.
  2. GBP/USD: The GBP/USD pair typically exhibits higher volatility compared to EUR/USD. Annual pip movements for GBP/USD can range from 1,200 to 1,800 pips on average.
  3. USD/JPY: The USD/JPY pair is often seen as less volatile compared to some other USD crosses. Average annual pip movements for USD/JPY can range from 800 to 1,200 pips.
  4. USD/CAD: The USD/CAD pair is influenced by factors such as commodity prices and economic conditions in Canada. It tends to exhibit moderate volatility. Annual pip movements for USD/CAD can range from 1,200 to 1,600 pips on average.
  5. USD/AUD: The USD/AUD pair is generally considered more volatile due to its exposure to commodity prices and economic conditions in Australia. Annual pip movements for USD/AUD can range from 1,500 to 2,000 pips on average.
  6. USD/NZD: The USD/NZD pair, similar to USD/AUD, can experience notable volatility. Annual pip movements for USD/NZD can range from 1,500 to 2,000 pips on average.

These estimations are based on historical data for the past 5 years and should be used as a rough guide.

It’s important to remember that market conditions can change, and pip movements can vary significantly within different timeframes and market environments. Traders should refer to real-time data and consider the prevailing market conditions for more accurate and up-to-date pip movement estimations.

Trading the USD crosses offer numerous opportunities for forex traders, given the significant liquidity and volatility associated with these pairs. Understanding the underlying factors affecting the USD pairs and employing effective trading strategies can help traders increase their chances of success. Remember to conduct a thorough analysis, combine technical and fundamental approaches, and practice disciplined risk management. As with any trading activity, continuous learning, adaptability, and experience will play key roles in mastering the USD pairs.


* The information provided here has been prepared by Eightcap’s team of analysts. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and do not reflect the opinions of Eightcap.
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