If strong economic data comes out of Australia, you might want to look at buying the AUD. Your first reaction might be to buy AUD/USD.
But what if at the same time, recent data also show the United States experiencing strong economic growth? The price action of AUD/USD may be flat.
One option that you have is to match the AUD against the currency of an economy that isn’t doing so well…Hmmm… what could you do?
Ah! Thank the forex gods for currency crosses!
Let’s say you did some analysis, checked the BabyPips.com economic calendar (shameless plug!) and you notice that the Japanese economy isn’t doing so good right now.
What do you do?
Of course, like any self-respecting bully, you jump all over this opportunity and go long AUD/JPY!
In the chart above, notice the relative strength of AUD/JPY vs. AUD/USD.
You’re not limited to just these currency pairs, you could’ve compared AUD against like EUR, GBP, and CAD.From there, you can look for the weakest currency to trade against.
There’s nothing wrong with being a bully, at least not here at the School of Pipsology.
Because of currency crosses, you now have the opportunity to match the currency of the best-performing economy against that of the weakest economy without having to deal with the U.S. dollar.