In the world of Forex trading, currency pairs play an important role. Traders need to understand this concept well because it is the basis of every transaction done. This article will cover the main currency pairs in Forex, why they are popular, and how certain factors affect their price movements. Organized to meet SEO criteria, the article also contains relevant keywords to ensure it is search-friendly and easily accessible to readers.
What Are Currency Pairs in Forex?
A currency pair is a combination of two currencies that are traded against each other in the Forex market. Each currency pair consists of two main elements: base currency (base currency) and quote currency. For example, in the EUR/USD pair, EUR is the base currency and USD is the quote currency. The price of this currency pair indicates how much of the denominated currency is required to buy one unit of the base currency.
Major Currency Pairs in Forex
Major currency pairs are the most frequently traded and most liquid currency pairs in the Forex market. Here are some of the main currency pairs you need to know:
- EUR/USD (Euro/US Dollar)
- Description: EUR/USD is the most popular and frequently traded currency pair in the world. The Euro (EUR) is the official currency of the European Union, while the United States Dollar (USD) is the official currency of the United States.
- Advantages: Very high liquidity and low spread.
- Factors: Influenced by the monetary policy of the European Central Bank (ECB) and the Federal Reserve (Fed), as well as the economic situation in Europe and the United States.
- USD/JPY (US Dollar/Japanese Yen)
- Note: USD/JPY is the second most popular currency pair. The Japanese yen (JPY) is the official currency of Japan, a country with the third largest economy in the world.
- Advantages: Stable price movement tendency.
- Factors: Influenced by Bank of Japan (BOJ) interest rates and Federal Reserve policy decisions.
- GBP/USD (Pound Sterling/US Dollar)
- Note: GBP/USD is known as “Cable” among Forex traders. The Pound Sterling (GBP) is the official currency of the United Kingdom.
- Advantages: High trading opportunities due to volatility.
- Factors: Influenced by Bank of England (BoE) policy, UK economic conditions, and political events such as Brexit.
- USD/CHF (US Dollar/Swiss Franc)
- Explanation: The Swiss Franc (CHF) is considered a “safe haven” currency due to Switzerland’s economic and political stability.
- Advantages: Often used as a value protector in times of market uncertainty.
- Factors: Influenced by Swiss National Bank (SNB) policy and global risk sentiment.
- AUD/USD (Australian Dollar/US Dollar)
- Explanation: AUD/USD is a popular currency pair among commodity traders because the Australian Dollar (AUD) is often influenced by commodity prices such as gold and iron.
- Advantages: Close relationship with commodity prices, providing additional trading opportunities.
- Factors: Influenced by Reserve Bank of Australia (RBA) policy and commodity price movements.
- USD/CAD (US Dollar/Canadian Dollar)
- Note: USD/CAD is also known as “Loonie”. The Canadian dollar (CAD) is heavily influenced by oil prices because Canada is one of the largest oil producers in the world.
- Advantages: Provides trading opportunities based on oil price movements.
- Factors: Influenced by Bank of Canada (BoC) policy and global oil prices.
Factors Affecting Major Currency Pairs
- Central Bank Monetary Policy
- Interest rate changes by central banks such as the Federal Reserve, the ECB, and the Bank of England can affect the value of a currency. Rising interest rates tend to strengthen the base currency.
- Economic Conditions
- Economic reports such as Gross Domestic Product (GDP), unemployment rate, and inflation give an indication of the economic situation of a country and can influence the value of the currency.
- Political Events
- Political events such as elections, referendums, or international conflicts can cause uncertainty in the Forex market, affecting major currency pairs.
- Commodity Price
- For currency pairs such as AUD/USD and USD/CAD, commodity prices such as gold and oil play an important role in determining the value of the currency.
Conclusion
Understanding the major currency pairs in Forex is an important basic step for every trader. By understanding how factors such as monetary policy, economic conditions, and political events affect the pair
