Because of the close trading ties, generally there is a strong correlation amongst the three major European currencies, as they float against the U.S. dollar within the forex trading market. Experienced traders know to watch the pound sterling and Swiss franc, as these two currencies act as chart leaders for the Euro.

The chart of each forex trading currency pair displays a unique set of behavioural characteristics. For example, the USD/JPY tends to respect technical support and resistance levels, while the GBP/USD tends to gallop straight through them without even a pause. These currency pair “personalities” can be useful to traders who learn how to exploit them.

The GBP/USD, commonly called the Cable, and the USD/CHF, called the Swissie, share some characteristics. This is not only due to geographical location. Both of these currency pairs are on average less liquid than the most commonly traded currency pair, the EUR/USD. Because liquidity serves as a “cushion” against sharp price moves, this lack of liquidity makes both the Cable and the Swissie strong and volatile movers.

When the market is relatively calm, neither of these currency pairs respects technical levels, frequently presenting false entry and exit points, sometimes more than 20 pips beyond the support or resistance line. However, when the market is breaking and particularly in moves driven by dollar sentiment, these two currency pairs tend to run hard and fast, with few breaks and pull-backs for traders to enter the market.

These pairs are well suited for trades utilizing trailing stops; however, when the market moves the wrong way, a trader would be well advised to simply exit the trade rather than waiting for a pull-back that’s not likely to come.

The EUR/USD, on the other hand, is the most popular currency pair in the forex market, with so much liquidity that the price moves relatively slowly even in a breaking market. For this reason, it’s beloved of day traders, who have ample opportunities to enter and exit trades precisely where they wish.

The EUR/USD tends to test support and resistance levels for extended periods of time, making it seem the market is undecided or stalling when it’s actually executing all the stop-loss and take-profit orders awaiting it there. This creates those multiple pull-backs that punctuate the major moves on the EUR/USD chart, even the moves driven by the release of unexpectedly good or bad economic data.

These three currency pairs, then, tend to echo each other’s movements, with the Cable and the Swissie leading the way for the Euro. Note the charts below

These two 30-minute charts of the Swissie and Euro illustrate this strategy. (Remember that the USD/CHF has the U.S. dollar as the base currency, whereas the EUR/USD has it as the cross, reversing the chart.) Note the green vertical line at 9:30 on Tuesday morning, 11 December 2007; the Swissie has completed its congestion pattern and has begun its move while the Euro is forming a final doji prior to turning.

A savvy trader who specialises in the Euro, therefore, may nevertheless profit from a study of the price moves made by the Cable and the Swissie.