When dealing in the forex market, a successful trader needs to be able to navigate through the various currency pairs available to them. To do this, they will need to know what the positive and negative indicators for these pairs are.
The first aspect we must of course consider is, what even are currency pairs? Currency pairs are the relative value of one currency in comparison to another similar currency. In other words, it is the exchange rate between two different currencies.
To give an example of this, we can compare the value of the (GB) pound against the (US) dollar. The form of the comparison would be as such GBP/USD, which would denote the value 1.29 for example. In this case, we can see that the value of the pound is higher than the value of the dollar. If we were to swap the formula, as USD/GBP, we will see a value of 0.78. On this occasion we see that the value of the dollar is in fact lower than the value of the pound.
Three major varieties of currency pairs exist within the forex markets: major, minor, and exotic pairs. We will, however, only be focusing on major and minor pairs within this article.
Major Currency Pairs
These pairs represent those that are most important for the worldwide economies. The market for these values is therefore highly active, with exchanges taking place almost constantly.
We can indicate seven of these major pairs which are worth looking into:
• USD/CAD – US dollar with the Canadian dollar
• AUD/USD – Australian dollar with the US dollar
• NZD/USD – New Zealand dollar with the US dollar
• EUR/USD – Euro with the US dollar
• USD/JPY – US dollar with the Japanese yen
• GBP/USD – British pound with the US dollar
• USD/CHF – US dollar with the Swiss franc
The link connecting all these pairs is of course the USD. This is due to the size of the reserves for the USD is by far the largest. The USD is treated as a standard on which international trades are made. As such, the number of international trades that take place is reliant not only from the US market. In fact, the US dollar is used in up to 88% of all international exchanges.
Minor Currency Pairs
The other currency pair is of course the minor currency pair. These pairs differ from the major pairs by their lack of reliance on the US dollar.
Some of the popular ones are:
• EUR/GBP — Euro with the British pound
• GBP/JPY — British pound with the Japanese yen
• EUR/AUD — Euro with the Australian dollar
• GBP/CAD — British pound with the Canadian dollar
• EUR/CHF — Euro with the Swiss franc
• CHF/JPY — Swiss franc with the Japanese yen
• NZD/JPY — New Zealand dollar with the Japanese yen
Those which involve the euro, British pound, or yen, are the most popular.
The US dollar is therefore the most obvious indicator of the importance of a trade. The strength of the US economy would of course be the reason for this. The depth of other important factors worth considering is great, so we recommend you seek these out before making any large commitments.