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Trading eur/usd against usd/jpy… Is it profitable?
Currency pairs like EUR/USD and USD/JPY often exhibit a relationship, typically an inverse correlation, because of the way the U.S. dollar functions as a common denominator in both pairs. When the USD strengthens, EUR/USD (euro vs. dollar) tends to fall, while USD/JPY (dollar vs. yen) tends to rise, and vice versa when the USD weakens. This dynamic stems from the interplay of economic factors, interest rates, and market sentiment influencing the dollar’s value. Let’s break down how you might profit from this.
First, you’d want to confirm the correlation’s strength. Historically, EUR/USD and USD/JPY often move in opposite directions, with a correlation coefficient that can hover around -0.7 to -0.9 (where -1 is a perfect inverse). You can check real-time correlation using trading platforms like MetaTrader, TradingView, or even free online tools from brokers like OANDA or Investing.com. If the correlation is strong and consistent over your trading timeframe — say, daily or hourly — you’ve got a foundation to work with.
One straightforward way to exploit this is through a pairs trading strategy. If EUR/USD is unusually high (overbought) and USD/JPY is unusually low (oversold), you could short EUR/USD (betting the euro weakens against the dollar) and go long on USD/JPY (betting the dollar strengthens against the yen). The idea is that…
