Forex Currency Pairs

currenciesYou all know that on stock markets, every individual stock has its own price, but in the Forex market things are a bit different. In Forex we have currency pairs, because in order to value one currency you need to compare it with another, thus the exchange rate was born. In contrast of stock market on Forex market transactions are simultaneous.

No matter that you bought or sold a Forex currency pair, you actually was engaged in two different transactions at the same time. Let’s say you are willing to buy GBPUSD, if you hit the buy button you will buy the British Pound and in the same time selling the US Dollar. If you want to sell, then you sell the British Pound and buying in the same time the US Dollar.

Each currency is classified as whether ‘Major’, ‘Minor’ or an ‘Exotic’, depending on their own trading volume, or liquidity. The ‘major pairs’ would be the most liquid currencies paired up with the USD.

US Dollar

US dollar is also known as the greenback, and it is the most trader currency in the world. All majors as paired up with the US dollar and thus making the “major pairs”. Why the US dollar is the most trader currency? After the breakup of “Bretton Woods System” US dollar became the unofficial global currency reserve. I must add the obvious fact that the US economy is the biggest in the world and bigger the economy, stronger the currency will be so there is no surprise that US dollar is desired trading currency.

us dollarAll major news events or economic activity in the United States a huge impact all across the global market – as I wrote US dollar is the biggest when we speak for trading volume so there is no surprise for huge ripple effect that US dollar creates.

 

Euro

euro currencyThe euro was the result of uniting almost all Europe’s countries, by creating a single currency across the Euro-area Europe gain more economic stability and strength. The Euro also eliminated the currency exchange fluctuations between the European countries trading internally with each other.

The Euro is second most traded currency and its value is determined by a number of economic and political influences of the countries’ that make up the Eurozone. Main factors being Central Bank Policies, Interest Rates, trade balance inflation, debt levels, and GDP output of the Eurozone countries.

Japanese Yen

japaneseyenThe third most traded currency in the world is the Japanese Yen and it is considered to be one of the majors. No surprisingly Yen is traded most in the Asian sector. Japan’s latest monetary policy is giving to traders/investors nice opportunity – thanks to the almost zero interest rates investors can borrow Japanese Yens an exchange it for the other major currencies like the high yielding Australian Dollar. The Aussie Dollar has a high interest rate. Profits are made from the difference in overnight interest charges/earnings.

The Japanese economy relies heavily on its export industry to fuel its economy and the soaring JPY value is choking their economy.

British Pound

british poundLast of the major currencies is the Great British Pound or GBP – British pound ranks on 4th place. Interestingly enough the United Kingdom is part of the Eurozone, but has chosen not to adopt the Euro due to pride the country has in the Pound’s history and Bank of England in in charge of regulating domestic interest rates.

There several factors that can affect the value of the Pound – its interest rates, the UK trade balance and the demand for oil. The GBP is largely backed by Crude Oil and Natural Gas. Crude oil prices are very volatile and spike up and down rapidly. Any sudden spikes up or down in crude prices can influence the value of GBP.

Swiss Franc

swiss francOne of the most safest and stable currency considered by many like a “safe heaven” is Switzerland Franc, also known as the Swissy. The biggest influence of the CHF is the inflation of the Swiss economy. When the Swiss National Bank decides to raise interest rates, investors may sell other assets elsewhere to invest into the CHF because of its safe reputation.

One big advantage for stability of the Swiss Franc is fact that 20% of the currency is supported by gold reserves. When the prices of Gold go up this directly strengthens the value of the CHF.

Australian dollar

aussi dollarThe Australian dollar or also known as Aussie is preferred for trading in the Asian sector. Australia trades with the all the other major Asian economies and mainly with China, which is Australia’s biggest trading partner. If China’s manufacturing decreases it can have a direct effect on the Aussie value. Australia supports China’s manufacturing by supplying them with all kinds of the raw materials. If demand for raw material goes down it would cause a drop in the demand for the Australian Dollar.

Australian Dollar generally flourishes when demand for raw manufacturing materials is in high demand across the globe. The value of gold and silver also influences the Australian dollar since Australia has a large precious metals mining industry and it’s a larger gold exporter.

Canadian Dollar

candian dollarThe Canadian dollar belongs to the Canadian economy, and is also sometimes referred to as the Loonie. Canada has many things in common with Australia both are commodity based economy and Canada controls the world’s 3rd largest reserve for crude oil in the world. So as you can imagine the Canadian Dollar’s value is heavily influenced by the supply and demand for crude oil.

Having a neighbor like US right next to you is an excellent advantage – the Canadian Dollar is highly correlated to the strength of the US economy. The US is Canada’s biggest customer for crude. Because crude oil experiences extremely spontaneous volatile price movements, the USD/CAD pair can be a very tough market to trade.

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