Month to date overlay of EUR, GBP, NZD, AUD, CAD, SGD, JPY and CNH showing their relative performance/strength against USD. Three trading themes (performance clusters) to choose from.
Overlay shows relative performance/strength, useful for pair selection
An overlay like this is useful for analysis, for picking currency pairs to trade.
This is an overlay of USD against CNH, JPY, SGD, EUR, AUD, CAD, NZD and GBP for the time period beginning 01 August 2017 to present. USD is strongest against currencies at the top i.e. NZD and GBP and weakest against those at the bottom i.e. JPY and CNH.
Conversely this means that NZD and GBP are the weakest currencies in this analysis and CNH and JPY are the strongest.
Unless there is a sudden U-turn (bear in mind past performance is not equal to future performance), as long as the current trend stays intact, the best pairs to trade can be found by matching currencies at the two ends. For example short NZDJPY, short GBPJPY or short NZDCNH or short GBPCNH.
On the other hand, trading a currency pair of two currencies that are adjacent to each other will probably deliver unattractive results since they are likely to stick together. A good example is EURSGD.
At a glance, there are 3 trading ‘themes’ (clusters) to choose from:
- JPY and CNH are moving closely apart from a ‘pop’ following Q2 GDP figures released on 14 August 2017. This pop caused a temporary divergence that closed quickly. For traders who are bearish USD, USDJPY and USDCNH are pairs to look at.
- GBP and NZD represent losers. For traders bullish USD, look at GBPUSD and NZDUSD.
- And then we have everyone else in the middle. CAD, EUR and SGD looks very tight.
It was not always 3 themes. Prior to 14-15 August, there were 4 clusters. After 14- 15 August, GBP pulled away from an AUD-CAD cluster. I think this could be attributed to a CPI performance released on 15 August that missed it’s forecast. Probably a story like -> lower CPI hurts prospects of rate hike leading to currency weakening.
In this story ‘See relative strength, pick winning forex trade from an overlay‘, I covered how to build an overlay on the Tradingview platform.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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