Choosing Forex Major Currency Pairs
Choosing the right Forex major currency pairs can help you increase your overall profits. There are many different factors to consider when choosing these pairs. Some of them include the currencies’ interest rates, the volatility of the currencies, and how they compare to other currency pairs.
EUR/USD
Among the major Forex pairs, EUR/USD stands out as one of the most popular. It’s also one of the most liquid. The pair is traded almost daily. It also has some of the lowest spreads in the world.
The US Dollar and the Euro are the two most traded currencies in the world. The US Dollar has the advantage of being more widely accepted, while the Euro is less. Both currencies have their strengths and weaknesses, and the strength of the dollar may determine the relative stability of the Euro.
A EUR/USD quote, or exchange rate, refers to the amount of US Dollars needed to buy one euro. The EUR/USD rate was in the doldrums until September. The pair traded in a range of 1.0875 to 1.1240.
The EUR/USD pair is one of the few currency pairs that are not dominated by a single bank. As a result, it’s possible to find quotes from many traders. This makes it possible to profit from short-term moves in the pair.
USD/JPY
Historically, USD/JPY has been viewed as a safe haven currency. However, it is important to note that the yen has appreciated against the dollar since 1971. It is currently the third most traded currency in the world. The yen has gained value as a result of several factors.
Interest rate differential is an important factor in the price of the USD/JPY. The difference between the Federal Reserve and Bank of Japan interest rates affects the value of the currency. This can cause interest rates to rise, making the currency more attractive to investors.
Another factor that affects the value of the USD/JPY is the economy of Japan. The Japanese economy is export-driven. The yen is often bought or sold as a substitute for other, more volatile currencies in the region. It is also particularly sensitive to the world price of energy. The value of the yen tends to fall when oil prices rise.
In addition to interest rates, USD/JPY is influenced by US inflation data. US labor market data and GDP are also important factors.
AUD/USD
AUD/USD, or the Australian Dollar, is a major currency pair. It’s often compared to other major pairs such as the USD/CAD, EUR/USD, and GBP/USD.
Aside from its status as a Major, AUD/USD also has a lot of liquidity. This makes it a good choice for novice traders. However, speculators and traders who have a longer-term perspective should consider the pair.
The most important market dynamics are related to interest rate expectations. This means that AUD/USD can go up or down based on the expectation that the US Federal Reserve will raise interest rates.
The US Federal Reserve releases interest rates eight times a year. This makes it important for all traders to keep track of the Fed release dates.
The Reserve Bank of Australia (RBA) is the central bank of Australia and meets eleven times a year. The minutes of these meetings are very important to track. They are released two weeks after the meetings.
The Reserve Bank of Australia also sets the overnight discount rate. It is important to keep track of these rates because they can affect the value of the Australian dollar.
Minor currency pairs
Having an understanding of minor currency pairs can be beneficial to both beginners and experienced traders. Although these pairs lack the liquidity of major currency pairs, they still offer ample trading opportunities when the majors are less favourable.
In the foreign exchange market, EUR/GBP, GBP/USD and AUD/JPY are the three most popular minors. Each pair accounts for approximately 2% of total trading volume.
GBP/USD is often referred to as the “Cable” or “Guppy” in dealing rooms. Its relatively high volatility means that it offers plenty of opportunities to trade.
USD/CHF is another popular minor pair. Its tight spreads make it an ideal pair for traders who are looking for low risk trading opportunities. The Swiss franc is considered a safe haven currency and tends to appreciate against the US dollar during uncertain market conditions.
EUR/GBP has traded in more predictable ranges in the last few years. Its increasing liquidity, as a result of increasing demand, has helped it become the ninth most traded currency pair.
