The EUR ( EUR ) has gained just over 100 pips vs The Australian Dollar ( AUD ) since this morning – as suggested.
When risk comes off ( markets cool or turn lower ) commodity related currencies such as AUD, NZD and CAD generally fall. This you can file away in your tool drawer, for the lifetime of your forex trading career.
Risk on = AUD, NZD and CAD UP! Risk off = DOWN.
When risk comes off…..”funding currencies” such as the Japanese Yen rise…as the money that was borrowed at near 0% interest, comes flooding back to Japan when stocks are sold. This too you can include in your “basket of trade secrets” for the forseeable future ( or at least until Japan totally implodes ).
We’ve got USD falling, EUR rising…..and in turn can formulate a tonne of trade ideas knowing as well that JPY rises when risk comes off….and the commodity related currencies fall.
There it is! You’ve got this!
Now…..things get a little tricky when you then consider trading pairs such as USD vs AUD where ( in theory ) BOTH should be falling! The trick here is two-fold. One – don’t trade a pair that you can’t work out where each of the individual currencies “fit” in the grand scheme of things ( based on the above breakdown ). Two – keep these ambiguous pairs “on watch” until you can clearly discern which way they’re going.
Always look for the largest moves to come in currency pairs that pit a funding currency ( cheaply printed JPY ) against a commodity related currency ( AUD ) when risk appetite/aversion shifts.
Getting a “macro view” of how each currency “behaves” during times of “risk on vs risk off” can be very valuable, and will help you simplify your trading. If you can’t reference each of the currencies you are trading, within this general framework – don’t trade’em!