When strong economic data comes out for a given country, your first instinct may be to purchase that country’s currency. For example, if you see a good headline come out of the UK, you may rush out to purchase the GBPUSD pair. However, it is possible that this pair won’t move up nearly as much as expected.
Imagine that strong economic data also comes out about the United States. If that is the case, then the pair may trade flat compared to your expectations. Instead, you may want to look at some of the Forex crosses that are available out there.
One thing that you could do for a more successful trade in the scenario described above is to look at buying a cross pair. Let’s say, for example, the UK and US economies are both on the upswing, but the Canadian economy is on the downswing. You might want to trade the GBPCAD as a pair instead of the GBPUSD pair. It might give you the opportunity to invest in something that actually will benefit from the strong news out of the UK.
You can see the relative strength of GBPCAD (in orange) compared to GBPUSD (in blue) in the chart above, and it is quite clear that you would have had a more successful trade if you had jumped on the GBPCAD train instead of the GBPUSD one, over the highlighted time period.
Ideally, you will always find a currency that you want to buy or sell, and then pair it against the weakest currency that you can find in order to get maximum results on your trade.