Trading Major Cross Pairs (EUR/JPY, GBP/JPY, etc.)

When you think about trading in forex, you're probably thinking about trading standard currency pairs, such as USD/AUD, for example. Then again, if you decided to go from selling the US dollar to selling something like the EUR/JPY or GBP/JPY? Your chart could be different. These major cross pairs have specifically to do with the US dollar: major cross pairs generate fast moves, new trends, and potential trading opportunities.

Traders who understand cross pairs know that they all can pivot and trade, find clearer signals on their charts, and discover moves that might be indicative of the US dollar. In this article, we are going to consider what major cross pairs are, why they matter, what opportunities exist and risks to consider, and ways to trade them.

What are Major Cross Pairs?

Major cross pairs are currency pairs that are home to two major currencies and don't involve the US dollar. Examples of major cross pairs include:

• EUR/JPY (Euro vs Japanese Yen)

• GBP/JPY (British Pound vs Japanese Yen)

• EUR/GBP (Euro vs British Pound)

• AUD/JPY (Australian Dollar vs Japanese Yen)

Major cross pairs are liquid currency pairs, a frequently traded currency pair in the foreign exchange markets, and often provide good leading indicators of sentiment across the market. Major cross pairs do not involve the US dollar and give the trader a picture of how two economies sit proportionally to each other, without having the US dollar in between.

Why Trade Cross Pairs Instead of USD Pairs?

The reality is that most traders will enter trading pairs involving the US dollar, because that is truly the currency pair that dominates foreign exchange trading. Nonetheless, cross pairs present unique advantages discussed below that are not offered by USD pairs:

1. Direct Relationship

Sometimes, traders want to assess the strength of a currency. In some situations, you might have an efficient FX rate that at all times measures three currencies to one another (for example, euro (EUR) vs. GBP), you could refer to EUR/GBP. Since there is no deal with USD in the trader's consideration, there is no need to adjust the final assessment to account for an additional currency pair that involves US dollars.

2. Diversification

Trading crosses provides a safeguard against being overly dependent on USD news and data.

3. Volatility Opportunities

Many crosses, especially with JPY, will move at a more aggressive pace than USD pairs. This means larger short-term opportunities.

4. Clearer Trends

There are times when the majors look flat or choppy because there are conflicting forces on the USD. Crosses often have a cleaner directional trend.

Spotlight on EUR/JPY

EUR/JPY is among the most popular cross pairs because it combines the link of the euro with the European economy and the Yen as a global haven.

• Market Drivers: Interest rate differentials between the European Central Bank (ECB) and the Bank of Japan (BoJ), European growth data, and global risk appetite

• Typical Behavior: EUR/JPY tends to move higher when global risk appetite is strong and moves lower when investors want safety in Yen.

• What's Attractive: High levels of liquidity, sharp moves, and regular long-lasting trends.

Spotlight on GBP/JPY

EUR/JPY is referred to as the "dragon" in trading circles; it is known for its volatility.

• Market Drivers: Bank of England monetary policy, Japanese monetary environment, UK political events, and trends in global risk.

• Typical Behavior: GBP/JPY often sees large daily ranges – often upwards of 150 – 200 pips – that's appealing for active traders.

• What's Attractive: Price swings and opportunities for momentum. Those same price swings also make GBP/JPY riskier than most pairs.

Other Notable Cross Pairs

• EUR/GBP: EUR/GBP reflects the balance of strength between the eurozone and UK economy; it's less volatile than yen crosses but susceptible to regional politics. Overview of AUD/JPY.

• AUD/JPY: It is highly influenced by risk sentiment and commodities that trade globally. Traders use it as a measure of risk-on sentiment and growth.

Major Cross Pair Drivers

- When trading crosses, you have to factor in the following drivers:

1. Interest Rate Differentials - The difference in rates set by a central bank against another country is one of the biggest drivers of flows. When the ECB raises its rates while the BoJ keeps its rates low, the EUR/JPY markets typically rate higher.

2. Economic Data - Moves can be brought on by employment, GDP, inflation, and trade balances. Since these cross-pairs will always contend against majors that both have a significant impact globally, the crosses tend to move quickly in reaction.

3. Risk Appetite - Cross pairs that contain the Yen or Swiss franc tend to be especially sensitive to whether the global investment community will have a "risk on or risk off" mentality with their position.

4. Political Events - Brexit, the decision of the EU, and policy decisions of the BoJ can produce waves throughout the cross.

5. Technical Levels - Since crosses attract a lot of technical traders, they tend to honor necessary support and resistance levels, which often create sharp reversals or breakouts.

The benefits of trading crosses

• Volatility is opportunity - Larger movements mean larger profit potential in shorter time frames.

• Bigger world picture - Crosses give insight into economic competition between two economies directly.

• Diversification - Reduces dependence on US data and US dollar-driven moves.

The risks of trading cross pairs

• Higher volatility = higher risk: Pairs like GBP/JPY can produce both profits and losses that can rise quickly.

• Wider Spreads: All crosses are liquid, but spreads on crosses tend to be larger than pairs on majors.• Complex Influences: As two economies are underlying the pair, you have to keep a watch on twice the amount of news and policy.

• Correlation Risks: Crosses tend to overlap with major pairs. If you are trading too many correlated pairs, you will be more exposed.

Practical Trading Strategies

1. Trend Following: Many crosses, most notably the yen pairs, will show quite strong trends. Determine the direction early and ride the momentum.

2. Breakout Trading: Crosses tend to consolidate before they make large movements. Breakouts from key ranges often make for good, profitable opportunities.

3. Carry Trades: If one currency has higher interest rates than the other and is held long, the trader should enjoy interest income (but will be taking on risk as well).

4. Risk Sentiment Trading: Utilize Yen or Swiss franc crosses as proxies for global market sentiment. "Risk on" confirms to add to AUD/JPY and GBP/JPY, with "risk off" confirming an exit.

Managing your risk in cross-pair trading

• Always use stop losses, especially with volatile pairs.

• Make sure to manage your position size to account for wider average daily ranges.

• Keep an eye out for overlaps with majors (for example, if you are long EUR/JPY and short USD/JPY, your net (combined) exposure to JPY is high).

• Watch both economies' calendars, not just one.

What might these scenarios look like?

1. EUR/JPY rally: ECB gives guidance on tightening interest rates in banks, while BoJ still has ultra-low rates. The euro appreciates against the Yen (therefore, EUR/JPY rises).

2. GBP/JPY volatility: A surprise inflation release from the UK causes the GBP to spike, while safe-haven flows into Yen pull the pair back down—and create a volatile trading session.

3. AUD/JPY as risk indicator: Global equities are rallying, and AUD/JPY appreciates along with this upward movement.

Conclusion

Trading in major cross-pairs, especially EUR/JPY and GBP/JPY, opens the door to more opportunities beyond the USD-based pairs. Cross pairs continue to show volatility, diversification, and can paint a clearer picture of global economic competition.

However, they take more effort to learn and trade them properly, particularly managing risks, appreciating the extent of both economies, and being disciplined enough to ride out some sharp movements.

If you are an effort-kind-of-trader, then major cross pairs can be solid tools, whether you are riding a trend, diversifying a portfolio, or want to identify where the global economy is, potential options for major cross pairs will provide you a professional advantage when you put in the work to respect, carefully plan, and practice trading. Snatch them up when considered too! Majors can serve as some of the most powerful built tools in making money trading.