Currencies used in calculations
In order to be able to calculate the various statistics presented throughout this website, or, for example, gain a true sense of how a specific currency has responded to a certain event, one needs to aggregate all cross-currency pairs composed of the currency in question.
This is exactly what we are doing. The percentage changes (taking into consideration the direction in relation to whether the currency in question is the base or quote currency) of a group of cross-currency pairs is averaged to derive the ‘composite currency’.
For example, the USD is composed of the EUR/USD, GBP/USD, USD/JPY, USD/CHF, CAD/USD, AUD/USD and NZD/USD.
The ‘composite currencies’ can also be selected in the drop-drown box of currencies in the Market Reaction Matrix.
As an example, say an event occurs relating to the United States. In response, the EUR/USD rises by 0.1%, the GBP/USD falls by 0.1%, and all other cross-currencies remain put. We can then conclude that there was no effect on the USD, although some traders moved out of GBP and into EUR. Hence, the need for a ‘composite currency’.
This gives users a better picture of the currency market’s reaction to a specific event.