The currency pairs, one at a time

Seven contracts, and they are not variations of one instrument. The widest moves more than twice as far in a day as the narrowest, a pip is worth three different amounts, and three of the seven move in the opposite direction to the pair you are watching.

Lesson 10 of 12. Every figure on this page is his, down to the second decimal place.

The dollar on the other side of all seven

Every one of these contracts is quoted against the US dollar, so the dollar is the one variable they share. He gives it its own profile before the pairs.

The United States has the largest economy in the world, and it is heavily reliant on domestic consumption — around 70 per cent of GDP. Which makes retail sales, the consumer confidence index and personal spending the indicators that lead the market. By sector the split is services 80.2 per cent, industry 18.9 per cent, agriculture 0.9 per cent.

Two structural facts matter for everything downstream. The dollar is the world's primary reserve currency and is used in most international transactions, so a change in Federal Reserve policy moves markets, commodities and even cryptocurrencies at once. And American technology — Apple, Microsoft, Google, Amazon — dominates global markets, which is why developments there show up in the NASDAQ.

What he watches:

  • US economic data — interest rates, inflation (CPI), unemployment, industrial production.
  • Geopolitical developments, which create both opportunity and risk.
  • Commodities and energy — oil, gas and precious metals, all influenced by US policy and tension.
  • Federal Reserve monetary policy, and its effect on stocks, bonds and currencies.
  • US–China trade relations, where any new tariff or policy can shake global markets.
  • And the trade split itself: exports go to Canada 18 per cent, Mexico 16, China 7, Japan 4.5, the UK 4, Germany 3.5 — with 47 per cent to everyone else. Imports come from China 17, Mexico 14, Canada 13, Japan 4.5, Germany 4.5, and 47 per cent from everyone else.
The United States economy split by sector, with domestic consumption dominating, and the countries its exports and imports are spread across
The economy on the other side of every trade on this page — and about half of its trade is with six countries, half with the rest of the world. Click to enlarge
A pie chart of the economic capacity of the countries in the major currency pairs measured by GDP, beside notes on the United States economy
His pie chart of the economies behind the major pairs, sized by GDP — with the United States dominating it.
Two charts breaking United States exports and imports down by destination and source country
Where American trade actually goes and comes from: about half to six countries, half to everyone else.

The same profile, seven times

Each pair gets an identical treatment, which makes them comparable. Eight things, and the last one is the one that costs money if you get it wrong:

  • Average daily true range as a percentage, and the same range expressed in pips.
  • The average five-minute range during the US session.
  • A deviation table giving the probability of a price reversal at each level.
  • How many ticks make a pip in that contract.
  • What a tick is worth — in futures and in the equivalent CFD.
  • The stop, in ticks, for a one-minute chart and for a range bar.
  • Whether the futures contract moves in the same direction as the CFD, or the opposite.
  • And the economy underneath: correlations, commodity links, the central bank, and where its trade goes.
The eight things he records for every currency pair, from the average daily range down to the direction it moves relative to a CFD
Two things never change across the seven: the stop is 10 pips above the candle high plus the distance to the entry, and the range bar is 5 per cent of daily volatility. Click to enlarge

The seven compared

Put the numbers side by side and the point of the exercise appears immediately.

6E Fiber — ATR 0.95%, 110 pip a day, 10 pip per five minutes, 2 ticks to a pip.
6J Gopher — 0.98%, 97 pip, 10 pip, 1 tick to a pip.
6B Cable — 1.19%, 136 pip, 11 pip, 1 tick to a pip.
6S Swissy — 1.1%, 100 pip, 10 pip, 2 ticks to a pip.
6C Loonie — 1.05%, 125 pip, 12 pip, 2 ticks to a pip.
6A Aussie — 1.09%, 88 pip, 8 pip, 2 ticks to a pip.
6N Kiwi — 0.85%, 60 pip, 5 pip, 2 ticks to a pip.

The Cable covers 136 pips in a day and the Kiwi covers 60. A stop that is sensible on one is either far too tight or far too loose on the other, and the position size from lesson seven depends entirely on getting that right. This table is what stops you using one number everywhere.

Each currency future with its average daily true range, its daily range in pips and its five-minute range in the US session
Seven instruments, not seven skins on one instrument. The spread between the widest and the narrowest is more than two to one. Click to enlarge

The deviation table, and what reverses where

Every specification sheet carries the same table, and it is the most directly usable thing in the range. Five deviation levels, each expressed as a distance in pips, as a percentage of the daily range, and — the column that matters — as a probability of price reversal.

The percentages and the probabilities are identical for every pair. Only the pip column changes, because it is scaled by that pair's daily range:

  • Deviation 1 — 66.67 per cent of the daily range, 56.62 per cent probability of reversal. That is 73.33 pip on 6E and 40.00 pip on 6N.
  • Deviation 2 — 83.32 per cent, 63.06 per cent. 91.67 pip and 50.00 pip.
  • Deviation 3 — 100.00 per cent, 69.15 per cent. This is the whole daily range: 110.00 pip on 6E and 60.00 pip on 6N.
  • Deviation 4 — 116.36 per cent, 74.75 per cent. 128.33 pip and 70.00 pip.
  • Deviation 5 — 133.33 per cent, 79.77 per cent. 146.67 pip and 80.00 pip.
  • Read it the practical way: once a pair has already covered its whole average day, it turns about 69 times in 100. Once it has covered a third more than that, about 80.
Five deviations with the percentage of the daily range each represents and the probability of a price reversal at it, shown for two pairs with different daily ranges
One table, scaled. The two pip columns differ and the two right-hand columns never do — which is why it is worth learning once. Click to enlarge
The euro contract specification with its deviation table, stop distances, tick value and entry example
The whole template on 6E: the deviation table, the stop, the tick value, and the entry with its 30-tick stop.
The same specification sheet for the New Zealand dollar contract, with a smaller daily range throughout
The identical sheet for 6N. Same percentages, same reversal probabilities — every pip figure smaller.

A pip is not a pip

This is where the contracts stop being interchangeable. How many ticks make a pip is not the same across the seven, and what that pip is worth is not the same either.

  • Two ticks to a pip, one tick being 5 pipettes — 6E, 6S, 6C, 6A and 6N.
  • One tick to a pip, with no pipette unit in the futures contract at all — 6J and 6B.
  • Worth $12.50 in futures — 6E and 6S. Worth $10 — 6C, 6A and 6N. Worth $6.25 — 6J and 6B.
  • And the CFD does not agree with the contract. 6E is $12.50 in futures against about $10 in a CFD; 6B is $6.25 against $10; 6J is $6.25 against about $6.70. The rest match at $10.
  • The practical consequence: the same 20-pip stop is a different amount of money on every one of them, so the lot size has to be recalculated per instrument rather than carried across.
How many ticks make a pip in each contract, and what that pip is worth in futures against a CFD
The same word, three different amounts of money — and the CFD disagrees with the contract on three of the seven. Click to enlarge

Three of them run backwards

The single most expensive thing on this page to get wrong.

A currency future is always quoted as dollars per unit of the foreign currency. When the CFD is written the same way round — EUR/USD, GBP/USD, AUD/USD, NZD/USD — the two charts agree. When the CFD puts the dollar first — USD/JPY, USD/CHF, USD/CAD — the contract is the reciprocal, and the two charts are mirror images.

His own explanation of the mechanism, on the franc: the direction differs because the base currency shifts from the numerator in futures to the denominator in the CFD. And his instruction on the yen, kept as he gives it: if you find a buying opportunity in futures, you would need to look for a selling opportunity in CFDs. This point is very important, so pay close attention to it while trading.

  • Same direction — 6E, 6B, 6A and 6N. He states it outright for the Aussie ("both charts move identically and in the same direction") and the Kiwi ("identical in terms of overall structure and direction"); for the Fiber and the Cable the specification sheet marks it, and the quote convention agrees.
  • Opposite direction — 6J, 6S and 6C. Stated explicitly for all three.
  • The clearest illustration is the yen: 0.0067045 in the contract against 150.628 in the CFD. Same market, one number the reciprocal of the other.
The futures contract always quotes dollars per unit of the foreign currency, so the three pairs written the other way round in a CFD move as mirror images
Four agree and three are reflections. The rule is mechanical once you see which side of the quote the dollar is on. Click to enlarge
The yen futures chart beside the USD/JPY CFD chart, the two moving in opposite directions
The clearest case: 0.0067045 in the contract against 150.628 in the CFD, and the charts mirror each other.
The Swiss franc futures chart beside the USD/CHF CFD chart, inverted against each other
The franc, the same way. Both have two ticks to a pip, so only the direction differs.
The Canadian dollar futures chart beside the USD/CAD CFD chart, inverted against each other
And the Loonie — 0.71165 against 1.40661, with the CFD the smoother of the two.

The stop, instrument by instrument

Two rules apply to all seven. The stop-loss amount is 10 pips above the candlestick high plus the distance between the candlestick and the entry point. On a range bar the stop is 3 ticks below or above the candlestick — but never less than 10 ticks, whichever instrument you are on.

The one-minute stop is where they part company:

  • 6E — 20 to 30 ticks. 6S, 6C and 6A — the same, 20 to 30.
  • 6B — 12 to 20 ticks.
  • 6N — 14 to 26 ticks.
  • 6J — 10 to 20 ticks, the tightest of the seven.
  • And the range bar size follows the same logic: 5 per cent of daily volatility, typically not less than 10 ranges — except on 6N, where he drops the floor to 8, because there is less daily movement to divide up.
The one-minute stop in ticks for each contract, with the two rules that apply to all of them
The Gopher needs half the stop the Fiber does. Carrying one number across all seven is the mistake this page exists to prevent. Click to enlarge

EUR/USD — 6E, the Fiber

The eurozone economy and the ECB's rate policy set this one. Its correlations are positive with GBP/USD and AUD/USD, negative with USD/CHF and USD/JPY, and it is indirectly influenced by oil because European countries are major importers.

The economy underneath is industrial production, trade and services — one of the largest exporters in the world, particularly machinery, automobiles and pharmaceuticals. What drives its GDP: Germany's industrial exports, consumer spending in France and Italy, and ECB policy holding the region together.

Where its trade goes: United States 18 per cent of exports, United Kingdom 13, China 10, Switzerland 7, Russia 4. China is the largest source of imports, followed by the United States, Russia, Switzerland and Norway.

And the number to remember: a 50 per cent increase in oil prices could reduce eurozone GDP by approximately 0.5 per cent — the largest oil sensitivity of the seven.

The euro pair with its correlations to the other majors and the trade split of the European Union
The most-traded of the seven, and the one most exposed to an oil shock. Click to enlarge
Two charts showing the main destinations for European Union exports and the main sources of its imports
Where the eurozone trades. The United States takes the largest share out; China is the largest source in.

USD/JPY — 6J, the Gopher

The odd one out in three separate ways, which is why it gets the most attention in the range.

First, one tick equals one pip in the contract — the only pair besides the Cable where that is true. Second, if your CFD has three decimal places then the third digit is a pipette and each pip divides into ten of them, so you will see greater volatility in the CFD than in the futures. Third, and most importantly, the two move in opposite directions.

The yen itself acts as a safe-haven asset during times of economic uncertainty. Correlations: negative with AUD/JPY and NZD/JPY, positive with USD/CHF. Commodities barely touch it — bond market volatility has a stronger impact. What moves it is the Bank of Japan's rate decisions and global equity swings.

Japan's economy is export-driven: high-tech products, automobiles and robotics — Toyota, Sony — with heavy import dependence on raw materials and energy. About 53 per cent of Japan's foreign trade is with Asian countries, 18 per cent with the US and Canada, and 12 per cent with Europe. As a net oil importer, a 50 per cent rise in oil could cut its GDP by about 0.4 per cent.

The yen contract, the reciprocal quotation that makes it move opposite to the CFD, and the safe-haven behaviour behind it
The clearest mirror of the three: 0.0067045 against 150.628, and the charts reflect each other exactly. Click to enlarge
The yen contract shown on a CFD chart above the same period on the futures chart
The same period on both feeds, before the explanation — the shapes are reflections of each other.
Two charts of Japanese export destinations and import sources, with Asia dominating the export side
Japan's trade: 53 per cent of it with Asia, 18 with North America, 12 with Europe.

GBP/USD — 6B, the Cable

The widest daily range of the seven — an ATR of 1.19 per cent and 136 pips a day. Like the yen it has no pipette units in the futures contract, so each tick is a pip; but the CFD does have them, which means you will see more intraday candle movement in the CFD than in the contract.

Bank of England policy and the UK economy drive it, especially post-Brexit. Correlations: positive with EUR/USD, negative with USD/CHF. Slightly influenced by gold, with limited sensitivity to oil. The economy is service-driven, with finance and banking central — financial services are nearly 10 per cent of GDP, and London is a global hub.

Trade: exports to the United States 14.1 per cent, Germany 10.5, Ireland 7, Netherlands 6.4, France 6. Imports from China 11.9, Germany 9.7, United States 9.2, Netherlands 7.3, France 4.7.

He devotes a whole slide to Brexit, and its effects fall into three areas:

  • Trade with the European Union. Leaving the Single Market and Customs Union brought tariffs and customs procedures; UK exports to the EU fell, particularly in food, agriculture and automotive, and imports became more costly and slower. Many companies, especially in finance, moved headquarters from London to Frankfurt and Paris.
  • Supply chains. Higher costs and delays for anyone reliant on European supply, worst in automotive and food — and hardest on small and medium enterprises, which lacked the resources to manage the new requirements.
  • Global trade. The UK has been negotiating independent agreements with the United States, Australia and New Zealand. Despite them, trade with the EU remains more significant, and the EU market is no longer accessible on the same terms.
  • His overall assessment: reduced trade volume and higher costs have negatively affected growth; there are internal political tensions, especially in Scotland; and the job market has been affected.
The widest daily range of the seven, and the three areas in which Brexit changed the trade underneath it
The widest mover of the seven, and the only one where he stops to explain a political event at length. Click to enlarge
The pound futures chart beside the GBP/USD CFD chart, showing the pipette difference between them
Same direction, different granularity: no pipettes in 6B, so the CFD shows more intraday movement.
Two charts of United Kingdom export destinations and import sources
UK trade by country — the United States first out, China first in.

USD/CHF — 6S, the Swissy

The franc is a safe-haven currency: its value increases during global financial uncertainties. Correlations follow from that — positive with USD/JPY, negative with EUR/USD and GBP/USD — and it has minimal connection to commodities. What moves it is the Swiss National Bank and global financial crises.

It is one of the three that run backwards, and he explains this one most precisely: in both the contract and the CFD every two ticks equal one pip and the tick size is 5 pipettes, so the volatility on lower timeframes is expected to be similar. Only the direction differs, because the base currency shifts from the numerator to the denominator. Futures 1.13425 against 0.88465 in the CFD.

Switzerland has a service-oriented economy: banking, pharmaceuticals and luxury goods. Banking and financial services are around 10 per cent of GDP, alongside pharmaceutical exports — Novartis, Roche — and high-value goods like watches and chocolates.

Germany sits on both sides of its trade: 18 per cent of exports and 20 per cent of imports. Then the United States 12 and 10, China 8 and 6, France 7 both ways, Italy 6 and 8. As a net oil importer a 50 per cent rise could cut GDP by about 0.2 per cent — the smallest oil exposure of the seven.

The franc as a safe haven, its inverse quotation against the CFD, and the trade concentration behind it
Same tick structure as the CFD, opposite direction — which makes it the cleanest demonstration of the mirror rule. Click to enlarge
The Swiss franc contract shown on a CFD chart above the same period on the futures chart
The franc on both feeds. Germany is on both sides of Swiss trade — 18 per cent out, 20 per cent in.
Two charts of Swiss export destinations and import sources
Banking, pharmaceuticals and luxury goods, and where they go.

USD/CAD — 6C, the Loonie

The oil currency. The Canadian economy is heavily reliant on oil exports, and oil prices have a direct impact on the currency — which makes it one of only two on this page where a higher oil price is good news.

Correlations: positive with USD/JPY, negative with AUD/USD and NZD/USD. What he watches is Canadian GDP data and US oil inventory reports.

The economy runs on natural resources — energy exports, especially crude oil, are about 20 per cent of GDP — plus forestry and mining. And it has essentially one customer: 76 per cent of exports go to the United States, with China 4.5, the UK 2.6, Japan 2.1 and Mexico 1.5. Imports come back the same way: United States 49 per cent, China 14, Mexico 5.5, Germany 3.1, Japan 2.5.

As a net oil exporter, a 50 per cent increase in oil could boost Canada's GDP by approximately 0.3 per cent.

On the mechanics: two ticks to a pip in the contract with each tick 5 pipettes, which he says makes the movement look somewhat choppy. In the CFD the numerator and denominator are swapped and each pip divides into ten pipettes, which makes it smoother — 0.71165 in the contract against 1.40661 in the CFD, moving in opposite directions.

The oil currency, with the export concentration into the United States and the positive effect of a higher oil price
One customer takes three quarters of everything Canada sells, and a higher oil price helps rather than hurts. Click to enlarge
The Canadian dollar contract shown on a CFD chart above the same period on the futures chart
The Loonie on both feeds, before the inversion is explained.
Two charts of Canadian export destinations and import sources, with the United States dominating both
One customer: 76 per cent of exports to the United States, and 49 per cent of imports back from it.

AUD/USD — 6A, the Aussie

Highly dependent on the export of raw materials such as iron ore and coal, and the prices of those two significantly affect the pair. Correlations: positive with NZD/USD, negative with USD/CAD. What moves it is Chinese demand for raw materials and the policies of the Reserve Bank of Australia.

The export concentration is the striking number. China takes 38.2 per cent of Australian exports, then Japan 15.2, South Korea 6.7, the United States 5.4 and India 4.2. Imports: China 25.8 per cent, the United States 10.5, Japan 7.2, Germany 5.3, Thailand 4.1.

Mining and natural resources are around 15 per cent of GDP, with agricultural exports like wheat and meat, and services such as education and tourism behind them. As a net energy exporter, a 50 per cent oil rise could increase Australian GDP by approximately 0.2 per cent.

Mechanically it is the simplest of the seven: two ticks to a pip in both the contract and the CFD, each tick 5 pipettes, and — in his words — both charts move identically and in the same direction.

The raw-material currency, with more than a third of exports going to a single country
More than a third of everything Australia sells goes to one buyer, which is why Chinese demand is the headline to watch. Click to enlarge
The Australian dollar futures chart beside the AUD/USD CFD chart, moving identically
The one pair where he says the two charts move identically and in the same direction.
Two charts of Australian export destinations and import sources, with China taking the largest share of both
China takes 38.2 per cent of Australian exports and supplies 25.8 per cent of its imports.

NZD/USD — 6N, the Kiwi

The narrowest of the seven — 0.85 per cent ATR and 60 pips a day, with a five-minute range of just 5 pips in the US session. It is the one pair where he drops the range bar floor from 10 to 8, because there is simply less daily movement to divide.

The economy is agricultural, and dairy is the main export — the pair is directly influenced by the price of dairy products, particularly milk. Meat and wine follow, and tourism is around 6 per cent of GDP. Correlations: positive with AUD/USD, negative with USD/JPY. What moves it is demand for dairy in China and elsewhere, and the Reserve Bank of New Zealand.

Trade: exports to China 28 per cent, Australia 15, the United States 11, Japan 6, South Korea 4. Imports from China 20, Australia 12, the United States 12, Japan 7, Germany 5. As a net oil importer, a 50 per cent rise could reduce GDP by about 0.3 per cent.

Mechanically: two ticks to a pip in the contract, but ten ticks or pipettes to a pip in the CFD — so the CFD movement is smoother while the futures looks somewhat fragmented and discrete. Both charts are identical in structure and direction.

The narrowest range of the seven, and an economy that turns on the price of dairy
Sixty pips a day. The instrument that most punishes a stop copied from another pair. Click to enlarge
The New Zealand dollar futures chart beside the NZD/USD CFD chart, the futures the more fragmented of the two
Same structure and direction, but the futures movement is the more fragmented — two ticks to a pip against ten.
Two charts of New Zealand export destinations and import sources
Dairy, meat and wine — and 28 per cent of it going to China.

What a 50 per cent oil rise does to each

He gives the same estimate for every economy in the range, which makes it the one genuinely cross-cutting number on the page. Five of the seven are hurt by a higher oil price and two are helped:

  • Eurozone — approximately −0.5 per cent of GDP. The largest exposure of the seven.
  • Japan — approximately −0.4 per cent.
  • United Kingdom — approximately −0.3 per cent.
  • New Zealand — approximately −0.3 per cent.
  • Switzerland — approximately −0.2 per cent. The smallest of the importers.
  • Australia — approximately +0.2 per cent, as a net energy exporter.
  • Canada — approximately +0.3 per cent, as a net oil exporter.
The effect on GDP of a fifty per cent increase in the oil price, for each of the economies behind the seven pairs
The same shock, two directions. The two that benefit are also the two he says are positively correlated with each other. Click to enlarge

What to take from this one

Three things, in the order they matter:

  • These are seven instruments, not seven names for one. 136 pips a day against 60 is a different stop, a different lot size and a different range bar setting. Copying a setup between pairs without recalculating is the mistake the whole range is written to prevent.
  • Three of them are mirrors. 6J, 6S and 6C move opposite to the CFD you are probably watching, because the contract quotes dollars per foreign unit and those three pairs are written the other way round. A buy in the contract is a sell in the pair. He repeats this instruction and it deserves the repetition.
  • The economy underneath tells you which headline matters. Oil is a cost for five of them and income for two. Chinese demand is the Aussie and the Kiwi. Brexit is the Cable. A safe-haven bid is the yen and the franc. Knowing which one you are holding tells you what to read in the morning.
Three panels: the pairs are different instruments, three of them run backwards against a CFD, and the economy underneath decides what news matters
Where the lesson ends up — and the deviation table is the piece to keep, because it is the same table for all seven. Click to enlarge

Next: the stock index contracts

The same treatment, applied to three very different instruments. What an index actually is, the news that moves one, and the S&P 500, the Dow and the Nasdaq 100 with the range and point value of each.

Back to the twelve lessons