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Q: Do currency crosses have the ability to drive major pairs?
Question:
Do currency crosses have the ability to drive major pairs? How do you know if the cross price action is dependent or independent of the underlying currency involved?
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Answer:
Yes! Currency crosses DO have the ability to drive movements in the majors and this is particularly true for the Japanese Yen crosses. There could be a situation where traders are dumping everything related to the “Yen” including EUR/JPY for example and if the sell-off is strong enough, it will also drive the EUR/USD lower. Currency crosses can also drive the movements in the majors when there are large merger and acquisition transactions that require a currency conversion. For example, if an Australian company decides to invest in or buy a Canadian company, that will involve a large conversion of Australian dollars into Canadian dollars. When that occurs the big move will be in AUD/CAD but we can also see the transaction drive the AUD/USD and USD/CAD lower.
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