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How do you look at Spreads (or technically Box's) in the Forex / FX markets?
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How do you look at Spreads (or technically Box's) in the Forex / FX markets?

  #1 (permalink)
Market Wizard
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How do you look at Spreads (or technically Box's) in the Forex / FX markets?

How do you look at Spreads (or technically Box's) in the Forex / FX markets? My background is energy, and we look at spreads and box's all the times, and I'd like to do something similar in FX but don't know how.

In Energy we look at time spreads, and inter-commodity spreads, and inter-commodity time spread's which are technically called box's.
For example
ICE Brent crude contract on Friday settled at $111.77 in Feb and $111.33 in Mar.
- Hence the Brent Feb/Mar spread settled $0.44
NYMEX WTI crude contract on Friday settled at $99.32 in Feb and $99.26 in Mar.
- Hence the WTI Feb/Mar spread settled $0.06
We would also say that Brent-WTI settled at $12.45 in Feb and $12.07 in Mar.
We can see where the Brent-WTI Feb-Mar Box settled in two ways
- Since Feb/Mar Brent settled $0.44, and Feb/Mar WTI settled $0.06 the box settled at $0.38
- Since Feb Brent-WTI settled $12.45 and $12.07 in Mar, the box settled at $0.38
It doesn't matter which way we look at it, the Box settled at $0.38. We can graph this historically, run technical's on it and anything else you want.

Unfortunately the same logic doesn't work in FX since currency rates are ratios. For example lets say I want to compare how AUDNZD has performed in relation to EURGBP what actually would you look at.

On Friday, CME settlements were
EURUSD 1.3672 which implies USDEUR 0.7314
AUDUSD 0.8867 which implies USDAUD 1,1277
GBPUSD 1.6324 which implies USDGBP 0.6126
NZDUSD 0.8144 which implies USDEUR 1,2279
Hence it follows that
GBPEUR is 1.1940 and EURGBP is 0.8375
AUDNZD is 1.0888 and NZDAUD is 0.9185

The problem is comparing GBPEUR at 1.1940 vs AUDNZD at 1.0888 (+0.2751) implies a completely different relationship than EURGBP at 0.8375 vs NZDAUD at 0.9185 (-0.2512).

Lets consider the case of what happens if EURUSD rallies from 1.3672 to 1.4 (hence USDEUR drops from 0.7314 to 0.7143) and everything else stays unchanged
It now follows that
GBPEUR is 1.1166 and EURGBP is 0.8576
Hence
GBPEUR at 1.1166 vs AUDNZD at 1.0888 is a spread of 0.2475 a change of -0.0276
EURGBP at 0.8576 vs NZDAUD at 0.9185 is a spread of -0.2311 a change of +0.0201
I believe that running technicals on these two spreads will yield different results

So if I want to compare how AUDNZD has performed in relation to EURGBP what actually would you look at.

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Market Wizard
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I am not very clear why you wish to calculate spread between 2 cross fx pairs but here is what I know.

The correlation between2 cross currency pairs like EURGBP and AUDJPY can be calculated here.

Forex Correlation | Myfxbook

The changes in strength of individual currency pairs can be calculated with this Hanover's mt4 module.

Recent Strength indicator @ Forex Factory

I guess if you wish to chart the spread between 2 cross pairs and then apply technical studies to it, then eSignal can do that.

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