# Why does the USD/JPY link to the EUR/JPY, but the USD/JPY is negative to the EUR/USD

#### hybrid

##### Member
58 1
can someone explain this to me simply?

in the real world everything is linked to the Dollar (Fiat currency system) so how can some currency pairs be negative in correlation to eachother?

thanks good people.

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#### Shakone

##### Senior member
2,458 665

how can some currency pairs be negative in correlation to eachother?

You could ask, is it possible for all currencies (or exchange rates) to be positively correlated to eachother?

rsh01

#### Giovan

##### Active member
163 7
Perhaps, you better refer to you lecture notes on correlation.

##### Legendary member
10,850 1,234
I've wondered that, myself. The pair does not seem to be named correctly. Should it not be JPN/USD if the chart says 100?

#### hybrid

##### Member
58 1

You could ask, is it possible for all currencies (or exchange rates) to be positively correlated to eachother?

But it is possible because they are - all are linked to the dollar...which is linked to....nothing.....as the gold standard was abolished in the 60s (or 70s).

I am still none the wiser to my original Question :help:

#### aag100

##### Established member
613 35
correlations be damned.take them as arbitrary.they are there when they are there and not when they are not.and they are usually not when its become customery wisdom that they are.

#### Shakone

##### Senior member
2,458 665
But it is possible because they are - all are linked to the dollar...which is linked to....nothing.....as the gold standard was abolished in the 60s (or 70s).

I am still none the wiser to my original Question :help:

So start with the correlation between EUR/USD and USD/EUR. Both are 'linked' to the dollar. Next extend the thought to something less trivial, i.e. not just the inverse relationship, but consider more currencies.

#### hybrid

##### Member
58 1
So start with the correlation between EUR/USD and USD/EUR. Both are 'linked' to the dollar. Next extend the thought to something less trivial, i.e. not just the inverse relationship, but consider more currencies.

ah, a great way of putting it - thank you very much.... i am there now apologies for being slow.

#### rsh01

##### Experienced member
1,184 299
shakones initial comment re flipping your thoughts sums it up well.....or you asked a more retarded question than first thought......

"Why does the USD/JPY link to the EUR/JPY, but the USD/JPY is negative to the EUR/USD"

back test for.....lets go wild.......a month, & you will answer the above. wake up?

#### Jason Rogers

##### Senior member
2,772 93
Why does the USD/JPY link to the EUR/JPY, but the USD/JPY is negative to the EUR/USD

Hi Hybrid,

To understand these correlations, it's first important to know how to read a currency quote. The first currency listed in a currency pair is the base currency. The second currency is the counter currency (AKA the quote currency).

So for USD/JPY, USD is the base currency, and JPY is the counter currency. For EUR/JPY, EUR is the base currency, JPY is the counter currency.

When you look at the chart for a currency pair and see the price rising, it means the base currency is rising in value relative to the counter currency. It is equally correct to say that the counter currency is falling in value relative to the base currency.

Going back to the example of USD/JPY and EUR/JPY, since JPY is the counter currency for both pairs, you will see both pairs rise in value when JPY falls, and both pairs will fall in value when JPY rises.

If you compare USD/JPY and EUR/USD, the one currency both pairs have in common is USD. However, USD is the base currency of USD/JPY, while it's the counter currency of EUR/USD. The means, if USD is rising in value, you will see USD/JPY rise while EUR/USD falls.

I hope that helps.

Jason

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#### Jason Rogers

##### Senior member
2,772 93
I've wondered that, myself. The pair does not seem to be named correctly. Should it not be JPN/USD if the chart says 100?

I used to feel the same when I first read currency quotes, because I kept thinking of the "/" symbol as part of a fraction with the numerator first and the denominator second. However, with currency quotes, it's the reverse. We are saying that 1 unit of base currency is equivalent to so many units of the counter currency. Or with USD/JPY, one unit of USD is equivalent to so many units of JPY.

#### hybrid

##### Member
58 1
Hi Hybrid,

To understand these correlations, it's first important to know how to read a currency quote. The first currency listed in a currency pair is the base currency. The second currency is the counter currency (AKA the quote currency).

So for USD/JPY, USD is the base currency, and JPY is the counter currency. For EUR/JPY, EUR is the base currency, JPY is the counter currency.

When you look at the chart for a currency pair and see the price rising, it means the base currency is rising in value relative to the counter currency. It is equally correct to say that the counter currency is falling in value relative to the base currency.

Going back to the example of USD/JPY and EUR/JPY, since JPY is the counter currency for both pairs, you will see both pairs rise in value when JPY falls, and both pairs will fall in value when JPY rises.

If you compare USD/JPY and EUR/USD, the one currency both pairs have in common is USD. However, USD is the base currency of USD/JPY, while it's the counter currency of EUR/USD. The means, if USD is rising in value, you will see USD/JPY rise while EUR/USD falls.

I hope that helps.

Jason

well written, and clears up what i now see as something very simple.

still, no such thing as a silly question :whistling

#### Jason Rogers

##### Senior member
2,772 93
still, no such thing as a silly question :whistling

Quite right! How else would we learn? :smart:

#### scose-no-doubt

##### Veteren member
4,630 954
interest rate parity- anyone

international exchange rates and targets- krugman

#### random12345

##### Established member
793 280
I've wondered that, myself. The pair does not seem to be named correctly. Should it not be JPN/USD if the chart says 100?

Splitlink is this sarcasm or have you been into the snuff again....? USD is the control if quoted first and therefore it is named correctly (i.e. 100 JPY to make a single USD). Just as the Euro is the static control in EUR/USD and you need 1.33 USD to make a single EUR.

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