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Forex: Why It Pays to Look Beyond U.S. Dollar Pairs

EURGBP, EURCHF and beyond

by Alexandra Lienhard
Updated: October 09, 2017

In this new interview, our Currency Pro Service co-editor Michael Madden tells you what forex cross rates are -- and why FX traders who usually focus only on major U.S. dollar rates may want to look at crosses. Learn which non-dollar pairs present the best opportunities right now.


Alexandra Lienhard: Today on ElliottWaveTV I'm talking with Michael Madden, who covers Cross Rates for Elliot Wave International's Currency Pro Service team. Hi Michael, it's good to see you.

Michael Madden: Hi Alex, you too.

AL: Now to start off with a bit of a more general question, is having a strong US dollar view necessary to understanding the cross rates, or is a strong US dollar view a "nice to have" but not necessarily a need to have?

MM: I would say a strong US dollar view is more of a "nice to have" than a really "need to have." With regard to the cross rates, one of the beauties is that we can trade certain markets without having a direct influence of the dollar on that pair. So while we do take into consideration within our currency overview the dollar and its direction, but in the cross rates we don't really need to know and we can trade certain markets without having a view on the dollar.

AL: Now Michael not a lot of people understand cross rates. They're intimidated by them and perhaps don't understand them fully. Can you take a minute and explain them to me in a way that perhaps the every-day trader or investor would understand?

MM: Yes Alex. Quite simply the cross rates are any pair that don't involve the US dollar. So while within the currency markets we have a primary seven or eight currencies. A cross rate then it doesn't involve the dollar. It would be like the euro/yen, the euro/sterling, and so forth.

AL: So Michael jumping into the markets, while a stronger euro has been the dominant FX story since literally the beginning of the year, you believe that some of the crosses are actually poised for euro out- performance, namely EUR/GBP and EUR/CHF. So what are you seeing?

MM: Yeah at the moment euro/pound, we're looking for euro out-performance, but we're not getting too married to that scenario as we feel that the September peak in euro/sterling may have been a significant one. And the out-performance currently underway is poised to be temporary, and we're looking for under-performance or stronger sterling going forward possibly into the end of this month. EUR/CHF, on the other hand, it's correcting within a still-unfolding strong uptrend. So while we will be looking for further gains in EUR/CHF, on the other hand, euro/sterling not so much.

AL: Now on the flipside where the euro has been strong this year, and part of last year is against the yen, but you've actually been anticipating a reversal and a weaker euro, stronger yen.

MM: Yes, but again within a strong euro/yen uptrend. So we feel that the euro, we're going to see some weakness against the yen, whether it is going to come from a stronger yen or weaker euro. But our wave count is suggesting that we could get a temporary pause within a strong uptrend. But as I said, a temporary pause. Once we have a corrective pattern in place we'd be looking for euro out-performance against the yen.

AL: And Michael one last question before I let you go. While flipping through your charts I actually noticed that you have a long-term view on the Australian dollar and Japanese yen. It looks like a few more months of chop and then blast off to the top side in 2018.

MM: That's what we're looking for Alex, yes. We feel that Aussie/yen is within a triangle pattern, midway within the triangle pattern. So we're looking at possibly further weeks to maybe a month or two of more consolidation. But once in place where it becomes an Aussie story or a yen story, we are looking for that pair to put in quite a performance to the upside. So be watching it closely.

AL: Well thanks for taking a couple of minutes to talk today, Michael. Lots of opportunities in the crosses.

MM: Oh for sure, thank you too, Alex. See you again soon.

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