Forex The Usual Suspects - Effective Baskets

I have skimmed through a good amount of posts on currency baskets and currency basket systems here that makes very little sense to me. Apart from currency basket systems, I think it would be of interest to talk about baskets of 2-5 pairs that reflect the way the market is trading of late. This may be useful to those looking to capture a currency moving, but don't want to concentrate all in the primary pairs like EURUSD. One can still overweight the primary pair(s), but allocate some to pairs, 3., 4., 5, etc. that they view will still move.


For example:

EUR
1. EURUSD
2. EURGBP
3. ?
4. ?
5. ?

What? No EURJPY. Why? Of late, EUR and JPY have traded with a 'risk on' 'risk off' bias to the market. If EUR is getting hammered because global equities are rallying, EURJPY may hold ground because JPY pairs are rallying.


Another Example:

JPY:
1. USDJPY
2. EURJPY
3. GBPJPY
4. AUDJPY
5. NZDJPY
6. CHFJPY

Why is JPY moving? Is it a pure Japan play/ event or is it 'risk on' 'risk off'? Depending, this list most effectively could include as few as 2-3 pairs because sometimes a basket of 2-3 pairs may make the most sense.


I think it is possible to create a list for each primary currency with a few versions depending on what's driving the market. The counter argument to much of this is 'Why ruin your edge with a hedge?'.

Source.