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Harlosh, if you go to the fx site at the top of this page you can get lots of information and open a dummy account etc

Harlosh,

I'm not sure why you should be under the impression that currency crosses exclude the Dollar. A cross is simply one currency crossed against another regardless of what those 2 currencies are.

As for ascertaining which currency is strongest, let's look for trends from the 15 minute charts at 7am today which is when most people in this part of the world switch on their screens and think about trading.

All that you have to go on is what's been happening overnight and, at that time, EUR/GBP was falling, GBP/JPY, EUR/JPY and USD/JPY were also falling, GBP/USD was rising and EUR/USD wasn't doing anything. I've ignored the Aussie, Kiwi and Loonie.

Straight away, therefore, you could conclude that JPY was the strongest currency and that EUR and JPY (edit: sorry typo, I meant USD not JPY) were just about equally the weakest. GBP was 2nd strongest. You could also conclude that at 7am either a EUR/JPY or USD/JPY short would offer the most favourable risk/reward ratio, while other trades might not have the same potential.

Obviously you need to constantly re-assess those strengths and weaknesses throughout the day as supports and resistances are established and further news flows and then reconsider your position(s) accordingly.

Let me know if that doesn't make sense. I'll be around again next week.

edit: As it happened, from 7am, both EUR and USD each fell around 100 pips against the JPY which vindicated the trades. EUR is still around the low indicating continued weakness, while USD rallied across the board and is no longer the weakest currency.

2nd edit: As USD started to turn up mid-afternoon, EUR was still continuing to fall and was clearly still the weakest currency. At that point, a EUR/USD short offered the best potential for a fresh trade.

Hilary, my little book I am reading describes cross currecies as:

any pair in which neither currency is the USD. These pairs may exhibit erratic price behaviour since the trader has, in effect, initiated two USD trades. eg initiating a long Eur/GBP trade is equivalent to buying a Eur/USD pair and selling a GBP/USD. The three most frequently traded cross rates are Eur/JPY, GBP/Eur and GBP/JPY.

Perhaps I have misinterpreted something?

Many thanks for the explanation above. It is a big help.

Sorry, Harlosh, having read the wording of your post I think you might well be right. I've got a feeling that currency pairs involve the USD and crosses don't or something like that.

Hil and Harlosh: You may not be the only people to be confused by FX terminology -- I've seen confusion over the nicknames like "Gopher".

Also, the underlying codes on the ComStock FX feed use X: as the designator for all pairs/crosses, e.g., X:SUSDGBP for "cross - spot - GB Pound / US Dollar" (Cable)

Indeed MM. I'll remember that one!

Actually, Harlosh, I think that all this mumbojumbogobbledegook about charts, pairs, crosses and Gophers is hogwash.

You should really be getting your trading direction from the Big Mac Index and ignoring all of the other indicators.

This article explains the Index in-depth although it is from 2004:

The Big Mac Index

Food for thought
May 27th 2004


The world economy looks very different once countries' output is adjusted for differences in prices.



HOW fast is the world economy growing? How important is China as an engine of growth? How much richer is the average person in America than in China? The answers to these huge questions depend crucially on how you convert the value of output in different countries into a common currency. Converting national GDPs into dollars at market exchange rates is misleading. Prices tend to be lower in poor economies, so a dollar of spending in China, say, is worth a lot more than a dollar in America. A better method is to use purchasing-power parities (PPP), which take account of price differences.

The theory of purchasing-power parity says that in the long run exchange rates should move towards rates that would equalise the prices of an identical basket of goods and services in any two countries. This is the thinking behind The Economist's Big Mac index. Invented in 1986 as a light-hearted guide to whether currencies are at their correct level, our basket is a McDonalds' Big Mac, which is produced locally in almost 120 countries.


The Big Mac PPP is the exchange rate that would leave a burger in any country costing the same as in America. The first column of our table converts the local price of a Big Mac into dollars at current exchange rates. The average price of a Big Mac in four American cities is $2.90 (including tax). The cheapest shown in the table is in the Philippines ($1.23), the most expensive in Switzerland ($4.90). In other words, the Philippine peso is the world's most undervalued currency, the Swiss franc its most overvalued.

The second column calculates Big Mac PPPs by dividing the local currency price by the American price. For instance, in Japan a Big Mac costs 262. Dividing this by the American price of $2.90 produces a dollar PPP against the yen of 90, compared with its current rate of 113, suggesting that the yen is 20% undervalued. In contrast, the euro (based on a weighted average of Big Mac prices in the euro area) is 13% overvalued. But perhaps the most interesting finding is that all emerging-market currencies are undervalued against the dollar. The Chinese yuan, on which much ink has been spilled in recent months, looks 57% too cheap.

The Big Mac index was never intended as a precise forecasting tool. Burgers are not traded across borders as the PPP theory demands; prices are distorted by differences in the cost of non-tradable goods and services, such as rents.

Yet these very failings make the Big Mac index useful, since looked at another way it can help to measure countries' differing costs of living. That a Big Mac is cheap in China does not in fact prove that the yuan is being held massively below its fair value, as many American politicians claim. It is quite natural for average prices to be lower in poorer countries and therefore for their currencies to appear cheap.

The prices of traded goods will tend to be similar to those in developed economies. But the prices of non-tradable products, such as housing and labour-intensive services, are generally much lower. A hair-cut is, for instance, much cheaper in Beijing than in New York.

One big implication of lower prices is that converting a poor country's GDP into dollars at market exchange rates will significantly understate the true size of its economy and its living standards. If China's GDP is converted into dollars using the Big Mac PPP, it is almost two-and-a-half-times bigger than if converted at the market exchange rate. Meatier and more sophisticated estimates of PPP, such as those used by the IMF, suggest that the required adjustment is even bigger.

Weight watchers

The global economic picture thus looks hugely different when examined through a PPP lens. Take the pace of global growth. Anyone wanting to calculate this needs to bundle together countries' growth rates, with each one weighted according to its share of world GDP. Using weights based on market exchange rates, the world has grown by an annual average of only 1.9% over the past three years. Using PPP, as the IMF does, global growth jumps to a far more robust 3.1% a year.

The main reason for this difference is that using PPP conversion factors almost doubles the weight of the emerging economies, which have been growing much faster. Measured at market exchange rates, emerging economies account for less than a quarter of global output. But measured using PPP they account for almost half.

Small wonder, then, that global economic rankings are dramatically transformed when they are done on a PPP basis rather than market exchange rates. America remains number one, but China leaps from seventh place to second, accounting for 13% of world output. India jumps into fourth place ahead of Germany, and both Brazil and Russia are bigger than Canada. Similarly, market exchange rates also exaggerate inequality. Using market rates, the average American is 33 times richer than the average Chinese; on a PPP basis, he is only seven times richer.

The way in which economies are measured also has a huge impact on which country has contributed most to global growth in recent years. Using GDP converted at market rates China has accounted for only 7% of the total increase in the dollar value of global GDP over the past three years, compared with America's 25%. But on PPP figures, China has accounted for almost one-third of global real GDP growth and America only 13%.

This helps to explain why commodity prices in general and oil prices in particular have been surging, even though growth has been relatively subdued in the rich world since 2000. Emerging economies are not only growing much faster than rich economies and are more intensive in their use of raw materials and energy, but they also account for a bigger chunk of global output if measured correctly. As Charles Dumas, an economist at Lombard Street Research, neatly puts it, even if a Chinese loaf is a quarter of the cost of a loaf in America, it uses the same amount of flour.

All measures of PPP are admittedly imperfect. But most economists agree that they give a more accurate measure of the relative size of economies than market exchange ratesand a better understanding of some of the dramatic movements in world markets. The humble burger should be part of every economist's diet.


This is the most recent table from January 2006:

Commodity currencies emerge as new safe-havens
Wed Feb 15, 2006 10:58 AM GMT


By Amanda Cooper

NEW YORK (Reuters) - Global geopolitical tensions show no sign of abating and 2006 may see the rise of a new breed of safe-haven asset, as commodity-backed currencies find favor with increasingly risk-averse investors, analysts say.

The economies of the three main commodity currency countries - Australia, Canada and New Zealand - are benefiting from the sizzling rally in raw material commodity prices, and also offer attractive interest rates.

"Commodity currencies" are those whose countries' raw material producing economies benefit when prices rise.

"I would say it's going to be more the hard currencies -- Canada and Australia. If there is a geopolitical risk or outbreak of inflation, that's where they (risk-averse investors) want to be," said Joseph Quinlan, chief market strategist at Banc of America Capital Management.

A cocktail of the war in Iraq, and Iran's confrontation with the U.N. over the potential development of nuclear weapons, along with record oil prices last summer, and a potential bird-flu pandemic, has heightened investor concern.

In times of turmoil, investors have traditionally flocked to assets that are deemed less risky like gold bullion, Swiss francs and U.S. Treasury debt.

Gold prices have risen to 25 year highs around $574 an ounce recently, and benchmark ten year U.S. Treasury bond yields remain low by historical standards, but investors are now looking for other safe havens also.

"I think 'where can I park my money and be safe?' and the safest currencies right now are the commodity-backed currencies," said Jes Black, director of research at FX MoneyTrends in Hoboken, New Jersey.

Black said that price moves in gold, which used to move in step with the Swiss franc, now serve as a proxy for commodity currency moves, which lag by about four to six months.

"What does that tell you? With gold, we think the coming strength for 2006 will be in the commodity currencies relative to all currencies," he said.

China's economic boom has been a big part of the rally in the prices of commodities such as copper, the backbone of the electronics sector, which has gained roughly 80 percent to hit record highs above $5,000 a tonne in the last year.

WORKING AGAINST THE ODDS

Even though the economies of several commodity currencies are battling the headwinds of large trade deficits and slowing growth, they still offer higher bond yields than do U.S. dollar bonds, and their value is reinforced by the demand for the currencies produced by rising demand for the commodities these countries produce.

"If there is an event in the Middle East that goes wrong, you've got something hard. These are below-the-radar screen asset classes that are very stable and secure in times of stress in that sense," Banc of America Capital Management's Quinlan said.

Gold the bulwark against inflation, has led the commodities charge and rallied virtually non-stop since 2001 to 25-year highs around $574 an ounce this year as record-breaking oil prices have fanned fears of inflation.

Gold has also profited from fears over instability in the Middle East, the world's largest source of crude oil.

"It is without a doubt in my mind the reason that gold is over $500 an ounce for the first time since 1980 or 1981. That is also a safe place to park cash,"said Chris Low, FTN Financial chief economist.

Meanwhile, the Swiss franc, a perennial safe-haven because of the country's stable political and financial environment has lost some of its edge because of its loose monetary policy.

"The Swiss franc is our favorite currency to sell, we sell it against everything," Black said, noting that it was the worst performing currency of 2005.

However, the high yielding commodity currencies may gradually lose some luster as global central banks monetary policy cycles shift.

The central banks of countries like Australia and New Zealand could start cutting interest rates in 2006, while others such as Switzerland may raise rates, thereby limiting the advantage of some commodity currencies.

Interesting reading Hilary. There are lots of messages in there I think.

Oh, and thanks for the Big Mac.

I prefer a Whopper myself, Harlosh.

:o)

Hilary, now understand your post on 4796, Pat Gardner likes a whopper too!

I found it interesting that the bloke from FX Money Trends was shorting the pants off the Swissie. The Big Mac Index shows it to be the most overvalued currency.

Now where can I get some Thai Bhats?

hilary, probably buying a place to trade from in thailand wouldnt b a silly idea at the moment, also thought it was interesting what they said about comodity currencies, aud/usd looking interesting

notice they dont include spanish big macs in your survey, heard they were pretty disgusting

goforit: That would be a EuroMac -- which does indeed sound disgusting.

Just need the Calender ,small short on Cable

It's reportedly a UK clearer who's sold it down this morning, Divetime. They reckon demand could emerge around 1.74 and it looks to be moving into an uptrend on the hourlies.

Thank`s hilary,out with small profit.

08:02 EUR/USD: Good bids Ahead of 1.1900, stops Under 1.1885] London, Feb 22.
With German growth data showing an unchanged 0.0 return for the fourth quarter
of 2005 the EUR got off to a soft start in Europe. The Asian market peaked at
1.1930 after the EUR based at levels around 1.1905 at the North American close.
Price action remains tight with the week not really off the mark following the
US holiday.
The German data has been slightly offset by French business sentiment and
consumer spending numbers, which have bettered market expectations. The EUR fell
to 1.1907 from early European highs around 1.1928 but has bounced back to
1.1917, where small offers have held the rise.
Talk in the market of good-bids in the 1.1900-10 area and stops under 1.1885.
The EUR has been hemmed in by orders since last week"s 1.2025-1.1890 fall and
the market appears unsure of direction.
Clouding direction is the on-going second guessing over US monetary policy and
the thorny issue of inflation. Some Fed officials still see US inflation too
high, according to the WSJ. Fed"s Fischer has made it clear what he thinks of
the inflation threat and sees very strong growth in Q1. US CPI data id due at
13:30 GMT.

Hopefully after 09.30 we should see sum movement ,was a bit slow yesterday.

Pleased with that - took 28 on the 9.30 spike up in 5 seconds.