One of the best technical tools we can use in our analysis is the strength or weakness of other currency pairs.
If you are of the opinion that because of fundamental reasons the Australian Dollar will strengthen, your next step would be to find the currency pair that gives you the best chance for a profitable trade. Instead of automatically picking a pair like the AUD/USD and placing a buy, you might want to take a look at some of the other pairs to see which currency is currently the weakest and play that one instead. An example would be to first check the chart of the EUR/USD. If this pair is falling, that means that the EUR is currently weaker than the USD and selling the EUR/AUD would be preferred to buying the AUD/USD. If the EUR/GBP is also falling, then the EUR is also weaker than the GBP and selling the EUR/AUD would be preferred to either buying the AUD/USD or selling the GBP/AUD.
By comparing the relative strength of all currencies, you should get a good idea of which of the other currencies is the weakest and match that weak currency with the strong AUD. The idea is to buy the strongest currency against the weakest currency to increase your chance of success on a buy or to sell the weakest currency against the strongest currency to increase your chance of success on a sell.
Written by Dailyfx.com
