Main Currency Pairs in Forex

 

Major Forex Currency Pairs

Principles of Currency Pair Group Formation

Forex trading revolves around currency pairs, where the value of one currency is measured against another. Major currency pairs are the most traded and liquid combinations, reflecting global economic trends. The principle is straightforward: the more widely used the currencies in a pair, the greater their significance. This impacts liquidity, popularity, and trading volume. Based on these criteria, Forex currency pairs are grouped into three categories.

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Major Currency Pairs

The major currency pairs predominantly involve the US dollar (USD), as it is the most widely recognized reserve currency. A significant portion of global foreign exchange reserves is held in USD, making it a benchmark for many currencies.

For example:

• The USD/RUB pair accounts for over 89% of the total ruble trading volume.
• In contrast, pairs like GBP/RUB or EUR/RUB make up less than 11%, highlighting their lesser relevance in global markets.

However, the ruble remains a regional currency and is not considered among the world’s major currency pairs.

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Key Major Currency Pairs

1. EUR/USD (Euro/US Dollar)

This is the most traded currency pair in the Forex market.

• Why it's popular: It links the two largest global economies — the US and the EU.
• Characteristics: High liquidity, narrow spreads, and sensitivity to global economic news.
• During times of economic uncertainty, investors often move from euros to dollars, causing the pair’s value to drop.

2. USD/JPY (US Dollar/Japanese Yen)

The economies of the US and Japan are closely interconnected through trade.

• Characteristics:
  • Japan’s export-driven economy places high importance on the yen’s exchange rate to maintain competitiveness.
  • This pair experiences high volatility, particularly during the Asian trading session.

3. GBP/USD (British Pound/US Dollar)

Known as the "Cable," this pair gets its nickname from the historic telegraph connection between the US and UK.

• Characteristics:
  • High volatility, attracting traders who use technical analysis.
  • Political events like Brexit can disrupt correlations with the euro, increasing volatility.

4. USD/CHF (US Dollar/Swiss Franc)

The Swiss franc is a "safe-haven" currency, often sought during times of economic uncertainty.

• Characteristics:
  • During crises, the franc strengthens against riskier assets and even the dollar.
  • The pair often correlates with EUR/CHF due to Switzerland’s strong trade ties with the Eurozone.

5. USD/CAD (US Dollar/Canadian Dollar)

This pair reflects the close economic ties between the US and Canada and is influenced by oil prices.

• Characteristics:
  • Canada’s economy is heavily reliant on oil exports.
  • Changes in oil prices directly impact the Canadian dollar's value.

6. AUD/USD and NZD/USD (Australian Dollar/US Dollar and New Zealand Dollar/US Dollar)

Pacific currencies exhibit strong trends, making them attractive for long-term trading.

• Characteristics:
  • Both currencies depend on commodity exports.
  • Economic announcements or government policies can cause significant price swings, especially for the more volatile NZD.

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Cross-Currency Pairs: Additional Opportunities

Apart from the major pairs, there are cross-currency pairs that exclude the US dollar.

• Examples:
  • GBP/JPY (British Pound/Japanese Yen): Known for high volatility and popularity among traders.
  • AUD/NZD (Australian Dollar/New Zealand Dollar): Reflects the economic interdependence of neighboring countries.

While cross-currency pairs have lower liquidity than majors, they offer unique trading opportunities for those willing to analyze their distinctive behaviors.

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How Exchange Rates Are Formed

Exchange rates are influenced by several factors, including:

• Economic data: Inflation, GDP, and employment statistics.
• Commodity prices: Oil, gold, and natural gas.
• Monetary policy: Central bank decisions.

Certain currencies, like the Chinese yuan (CNY), have managed exchange rates controlled by the government, limiting their market-driven fluctuations.

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Conclusion

Major Forex currency pairs are the most liquid and traded combinations, offering vast opportunities for analysis and profit. Understanding how these pairs are formed and what drives their movements is essential for traders.

 

By studying major currency pairs, traders can gain a deeper insight into the Forex market and develop effective trading strategies.