Major Currency Pairs
Online Currencies Trading
The Foreign Exchange market sees daily turnovers of trillions of dollars. Traders around the world eagerly anticipate trading events which affect these national currencies, and serious profits await those with the necessary trading knowledge.
Currencies are traded in pairs (for example, the Euro against the U.S. Dollar (“EUR/USD”), with exchange rates fluctuating based on which currency is strengthening or weakening at the moment. The currency pairs listed below are considered the “Majors”. These are the most liquid and widely traded currency pairs in the world.
| Pair | Countries | Often referred to as: |
| EUR/USD | Euro zone / United States | “euro dollar” |
| USD/JPY | United States / Japan | “dollar yen” |
| GBP/USD | United Kingdom / United States | “pound dollar” |
| USD/CHF | United States/ Switzerland | “dollar swissy” |
| USD/CAD | United States / Canada | “dollar loonie” |
| AUD/USD | Australia / United States | “aussie dollar” |
| NZD/USD | New Zealand / United States | “kiwi dollar” |
Below are some important notes to keep in mind when trading the USD, EUR, and GBP.
The USD
The USD plays a unique role in the world of international finance. As the world’s reserve currency, the U.S. Dollar is used to settle most international transactions. When global central banks hold foreign currency reserves, a large portion of those reserves is often held in USD. Also, many smaller countries choose either to peg their currency’s value to that of the U.S. Dollar or choose to use the USD instead of their own currency. The price of gold (and other commodities) is generally set in U.S. Dollars, and the Organization of Petroleum Exporting Countries (OPEC) transacts in USD as well (meaning when a nation buys or sells oil, it buys or sells the U.S. dollar at the same time). All of these factors contribute to the dollar’s status as the world’s most important currency.
It is no wonder therefore that the U.S. Dollar is the most heavily traded currency. Most foreign currencies trade against the USD more often than with any other currency. For this reason, it is important for investors interested in the currency markets to have a firm grasp of the fundamentals of the United States economy and a solid understanding of the direction in which the USD is going.
The Euro
While the USD is the currency of a single country, the Euro is the single currency of 16 European countries within the European Union, collectively known as the “Eurozone” or the European and Economic Monetary Union (EMU). The Euro tends to weaken when disagreements arise among European governments about the future course of the European Union or monetary policy.
Because the EUR/USD is such a popular currency pair, arbitrage (the simultaneous purchase and sale of an asset in order to profit from a difference in the price) opportunities are not often available. However, investors still enjoy trading the pair. As the world’s most liquid currency pair, the EUR/USD offers very low bid-ask spreads and constant liquidity for traders wanting to buy or sell. These two features are important to speculators and help contribute to the pair’s popularity. The combination of liquidity and volatility makes the EUR/USD pair an excellent place to begin trading for newcomers to the currency market.
The GBP
Like all currency trading, successfully predicting the GBP involves knowing all the upcoming trading events of the Bank of England. The Bank of England serves as the central bank to the British economy, and changes in its interest rate often cause immediate volatility for currency pairs which include the GBP.
It is important to note that while the United Kingdom is located in Europe, it is not part of the Eurozone. This means that while much of British trade depends on the health of the European economy, the GBP is quite independent of the Euro’s shifts in value.
Traders should stay up-to-date on the major data releases affecting the GBP, such as: Consumer Sentiment, Gross Domestic Product, Unemployment, Retail Sales, and Payrolls.
Factors Influencing the Direction of the EUR/USD
The primary factor that influences the direction of the EUR/USD pair is the relative strength of the two economies. With all other things being equal, a faster-growing U.S. economy strengthens the USD against the EUR, and a faster-growing European Union economy strengthens the Euro against the Dollar. One key sign of the relative strength of the two economies is the level of interest rates. When U.S. interest rates are higher than those of key European economies, the Dollar generally strengthens. When “Eurozone” interest rates are higher, the Dollar usually weakens.
Another factor that can have a strong influence on the EUR/USD relationship is political instability among the members of the European Union. The euro, introduced in 1999, is also relatively new, which makes the “Eurozone”, in some respects, an experiment in economic and monetary policy. As the countries within the “Eurozone” learn to work with each other, differences sometimes arise; if these differences appear serious or potentially threatening to the future stability of the “Eurozone”, the USD is likely to strengthen against the EUR.