LTT, if both of the indexes are moving south, and the cross is moving north, then all that means is that the secondary currency in the cross is weaker than the primary.
If both of the indexes are moving north, and the cross is moving south, then the secondary currency in the cross is stronger than the primary.
I posted the following in another thread, so this is a cut-n-paste. In lieu of this, it's the AUD that is the major mover of the EUR/AUD cross. By applying the formula below you will also be bale to conclude that:
In order to prove the point of what I'm about ready to show, I am going to use 3 currencies, which will be the Euro, GBP, and the yen, while be compared to the USD.
It is a fact that it does not matter what currencies you use, as it could just as well as be the CAD, CHF, NZD being compared to the NZD.
First, let's establish one fact, and this is for the ones that read this post that have not read my previous posts of mine regarding the mathematics of the markets. Again, we can choose any currency pairs because it is still pure mathematics:
GBP/USD*USD/JPY=GBP/JPY. If you don't believe it (I kind of hope you don't, then you will check it for yourself.), then check the current rate of the GBP/USD and the USD/JPY. Multiply them together, and see if it does not equal GBP/JPY.
Algebraic proof is we have USD in the denominator and numerator, so the cancel each other out, because anything over itself equals 1. We are left with GBP/JPY.
The next query is which currency moves which currency pair. There is a lot of FA conjecture along those lines, but anyone that knows 4xpipcounter, he could care less about FA's. They put him to sleep. He only wants to know facts. So, here they are.
The first thing we need to look at are the daily ranges for this year:
EUR/USD: 148
GBP/USD: 144
USD/JPY: 65
EUR/JPY: 146
GBP/JPY: 140
EUR/GBP: 69
The range is the average high/low spread for any day.
Next is the current rates that I used for this montage:
EUR/GBP: .8554
EUR/JPY: 104.52
GBP/JPY: 122.21
What does that mean?
For every .8554 pips the Euro moves, GBP will move 1 pip in order to stay in the same place. In other words, if the GBP moves 10,000 pips north, and the euro moves 8,554 pips north, then the rate for the EUR/GBP will still be .8554.
Here's an example. The current rate for the EUR/USD was 1.3448 and GBP was 1.5722 (Divide the EUR/USD rate by the GBP/USD rate and tell me what you get.). If the GBP/USD moves up to 1.6722, and the EUR/USD moves to 1.4303, then the EUR/GBP is still .8554. Notice the GBP would have risen 1,000 pips and the euro would have risen 855 pips.
Now we take the range factors. This is where we divide the ranges to decide how much faster once currency is moving than the other.
The EUR/GBP is 1.0278, which means the euro moves 1.0278 times as fast as the gbp, or 2.7% faster:
EUR/GBP:1.0278
EUR/JPY: 2.2461
GBP/JPY: 2.2154
Now we divide the current rate by the range factor in order to determine which currency has the greatest effect on the pair. In order to cut ot the chase for now, a number over 1 favors the primary currency and under 1 favors the secondary currency:
EUR/GBP: 1.2015
EUR/JPY: 2.1490
GBP/JPY: 1.8128
Those numbers tells us almost invariably, the EUR/JPY is moving in the same direction as the EUR/USD, but the euro against the GBP does not have quite the obvious effect, as the euro has against the yen.
This can be proven by pulling out the daily charts and comparing candle for candle the EUR/USD and EUR/JPY and see what few exceptions there would be in their respective candles moving the same direction. Yet, you will notice more exceptions by comparing the EUR/USD to the EUR/GBP.
It was just a few years ago when it was the yen that moved the GBP/JPY. There was so much stereotype in those days because most people thought the GBP that moved the pair. This is because the GBP/USD was always a faster moving pair than the USD/JPY. In recent years, the yen has gotten even slower, and the rate on the GBP/JPY has dropped significantly. What you had a few years ago was a lower range factor with a higher rate to divide by, which meant a significantly lower dividend that was less than zero, which meant the yen moved the GBP/JPY.
