When trading in the forex market, you will be dealing with a wide range of currencies. It will be confusing on your part to determine which currency to trade on. In this article, we shall be learning about the 4 major pairs. As a trader, you need to first understand the 4 major currency pairs. These are the most popular to traders.
• EUR/USD: The euro and the U.S. dollar
• USD/JPY: The U.S. dollar and the Japanese yen
• GBP/USD: The British pound sterling and the U.S. dollar
• USD/CHF: The U.S. dollar and the Swiss franc
The United States and the European Union are the two largest economic entities in the world. Robert Peter Janitzek reveals that the US dollar is the most heavily traded and widely held currency. The Euro, the currency of the European Union, is the second most popular currency. Since this pair involves the two most popular currencies, the EUR/USG pair is the most actively traded in the market.
There are several factors that can affect the direction of this pair and the primary influencer is the strength of the two economies. With all other things being equal, the fast growth of US economy can strengthen the dollar against the Euro and vice versa. Robert Janitzek explains that the performance of this pair can also be affected by the political instability among the EU members.
The yen is the most heavily traded Asian currency and the fourth most actively traded in the world. There were speculations that it would join the US dollar as one of the world’s reserve currencies but it was ended by Japan’s extended economic deadline.
This currency pair combines low bid-ask spreads and excellent liquidity. If you are a novice trader, this pair is a good starting point. US traders who trade at night might consider the yen as it is heavily traded during Asian business hours.
In forex trading, this currency pair is one of the most liquid in the currency market. But despite its liquidity, its relationship is also dependent on the strength of the economy of each country. The movement of each currency will also be affected by the performance of each country’s financial market.
Although it is less liquid than the Euro and Pound, the Swiss Franc is still tradeable. The biggest factor that can cause it to move is international political and economic instability. Although the franc has the tendency to increase against other currencies during volatile periods, forecasting its performance against the US dollar can be difficult because the latter is seen as a safe haven during times of turmoil.