How Cross Currency Pairs Can Impact Dollar Trades
Let’s imagine the Fed just announced a rate hike.
As expected, traders start buying the U.S. dollar like crazy across the board.
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EUR/USD and GBP/USD drop.
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USD/CHF and USD/JPY surge.
You’re short on EUR/USD and feeling good—price is moving in your favor and pips are stacking up.
But just as you’re about to light up a victory cigar, you find out your friend, who went long USD/JPY, made way more pips than you did.
Wait, what?! 😕
You check the charts and notice something:
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USD/JPY exploded 200 pips after breaking a major resistance level.
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Meanwhile, EUR/USD only dropped 100 pips and didn’t even break support.
So you’re thinking:
“If everyone’s buying USD, why did my trade underperform?”
The Answer: Currency Crosses Like EUR/JPY
Here’s what’s going on:
When USD/JPY broke resistance, it triggered stop-loss orders and breakout trades, sending it even higher.
That surge weakened the yen, which caused EUR/JPY to rise too.
Now here’s the twist:
As EUR/JPY went up, it pushed the euro higher against the yen, which made the euro stronger overall.
This euro strength acted like a parachute on EUR/USD, slowing down its drop—even though the dollar was strengthening.
The Takeaway: Cross Pairs Can Influence Your Trades
So even if you only trade major USD pairs, cross-currency pairs like EUR/JPY can affect how much your trade moves.
In this case, the cross pair cushioned your EUR/USD short—limiting your potential profits.
Crosses can act like parachutes, slowing or softening moves in major pairs.
Always keep an eye on them—they can explain why your trade didn’t go as far (or as fast) as expected.