Sun. Jul 25th, 2021

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How cross currency pairs affect dollar pairs?

1 min read

In a hypothetical state, the Federal Reserve has increased the interest rates. Now, the market will start buying the U.S. dollar quickly across all major currencies. Therefore, EUR/USD and GBP/USD will fall, and on the other hand, USD/CHF and USD/JPY will rise.

Suppose, you were trading with EUR/USD. Now the pair violates 100 pips and fails to break the major support level. On the other hand, your friend is trading with USD/JPY makes a bigger move. The latter pair dominates a major technical resistance level and gains 200 pips. This happens due to currency crosses.

Let us discuss this in detail. The combination of stop losses and escaped traders push it higher when USD/JPY emerges its major resistance level. The EUR/JPY hovers its major resistance level if USD/JPY is bought more and more.

Buying more USD/JPY abates the yen and thus EUR/JPY comes on its major resistance level. This again results in hitting stops and drawing the attention of the breakout traders and therefore, EUR/JPY moves higher again.

Stops are generated and breakout traders are going long happen when resistance breaks. This heightens the euro but condenses EUR/USD. This is why EUR/USD does not move as swiftly as USD/JPY. And for this, cross-currency pairs affect U.S. dollar pairs.

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