Forex Cross Rates

Forex Cross Rates: Understanding Currency Pair Relationships

Forex Cross Rates allow traders to see the exchange rate between two currencies, neither of which is the U.S. dollar. This provides critical information for those who want to trade or analyze currency pairs that do not involve the dollar directly, such as EUR/GBP or AUD/JPY.

In the foreign exchange market, cross rates are essential for those interested in diversifying their portfolio or looking for opportunities in non-USD-based currency pairs. Our Forex Cross Rates tool on Finplan.io enables you to monitor these rates in real-time, helping you identify market opportunities more easily.

What Are Forex Cross Rates?

Forex Cross Rates are the exchange rates between two currencies where neither currency is the U.S. dollar (USD). Historically, the U.S. dollar has been the base currency in most forex transactions. Therefore, to find the exchange rate between two non-USD currencies, you would first need to convert both currencies into USD and then derive the cross rate.

For example, if you want to determine the EUR/GBP exchange rate, you’d look at how many U.S. dollars each currency is worth and then compute their ratio. Today, with advanced tools like those available at Finplan.io, this process happens instantly.

Why Are Cross Rates Important?

Diversification Trading cross currency pairs offers traders more options outside the heavily traded USD pairs. For example, if you’re interested in European or Asian markets, you can look at pairs like EUR/JPY or GBP/CHF.
Correlation Management Many cross-currency pairs have a correlation with major pairs involving USD. By trading cross pairs, you can potentially reduce exposure to the U.S. dollar and instead focus on regional economies.
Market Insights Cross rates can give insights into broader economic trends. For example, if EUR/JPY is strengthening, it might indicate stronger European economic performance relative to Japan, offering opportunities to trade or hedge.

How to Trade Forex Cross Rates

Trading cross currency pairs requires a good understanding of the individual economies that the currencies represent. Here’s how you can get started with cross rates trading:

Understand Economic Indicators: Currency pairs are often influenced by interest rates, inflation, GDP growth, and political stability. To trade cross rates, stay updated on key economic indicators from both countries involved in the pair.
Watch for Correlations: Cross pairs are often influenced by major currency pairs. For instance, EUR/JPY might correlate with USD/JPY movements. Understanding these correlations can help you anticipate price movements.
Technical Analysis: Like any other forex pair, cross rates are subject to technical analysis. Use charts, indicators, and tools like moving averages, RSI, and Bollinger Bands to identify potential trade setups.
Risk Management: Cross pairs can sometimes be more volatile than major pairs involving USD. Therefore, always implement sound risk management practices like using stop-loss orders and position sizing.

Popular Cross Currency Pairs

Here are some of the most frequently traded cross pairs in the forex market:

EUR/GBP (Euro / British Pound)
EUR/JPY (Euro / Japanese Yen)
AUD/JPY (Australian Dollar / Japanese Yen)
GBP/CHF (British Pound / Swiss Franc)
NZD/JPY (New Zealand Dollar / Japanese Yen)

These pairs offer diverse trading opportunities and are influenced by a range of global economic factors, making them popular choices for traders seeking variety.