Each currency pair has its own characteristics, among them, the best currency pairs consisting of currencies whose trends are checked and traded all over the world is called a major currency pair.
The major Forex currency pairs
Traders and news media have slightly different views on which currency pair is a “major”, but the “major currency” generally consists of the four popular currency pairs below:
- Dollar / Yen
- Euro / Dollar
- Pounds / Dollars
- Dollar / Swiss franc
In addition, most major currency lists include the following three “commodity currencies” combined with the US dollar:
They are the Australian dollar/US dollar (AUD/USD), the US dollar/Canadian dollar (USD/CAD), and the New Zealand dollar/US Dollar (NZD/USD). A total of 7 currency pairs, including these 3 currency pairs and the 4 currency pairs mentioned above, account for 80% of the world’s currency transactions.
Cross-currency pairs
These are simply other currency pairs that do not include the US dollar, such as the Euro/Yen, the Euro/Swiss Franc, and the Euro/Pound.
The four most popular currency pairs
- Euro / Dollar Trading (EUR/USD):
EUR/USD or Eurodollar is the most traded currency pair in the world. It’s no wonder that this currency pair is highly traded as it is a combination of the currencies of the United States, the world’s largest economy, and the EU, which boasts the second largest economy in the world.
This currency pair, including the Euro, which began full-scale circulation in 2002, is also characterized by being the newest of the major currency pairs.
- Dollar/Yen Trading (USD/JPY):
The first thing many traders notice about dollar-yen trading is that the value of one pip is quite large compared to other major currency pairs, this is due to the relatively low value of the yen against the US dollar.
In carry trades, where you borrow the currency of a country with low-interest rates and invest in the currency of a country with high-interest rates, half of the transactions are done using yen. The Bank of Japan has been fighting against low inflation and low growth for many years, and as a result, it has implemented a zero interest rate policy and a negative interest rate policy.
In addition, the yen is widely recognized as a safe haven for assets, as evidenced by the appreciation of the yen even in uncertain economic conditions. Traders have a similar view of the US dollar, which complicates the movement of the dollar-yen.
- Pound / Dollar Trading (GBP/USD):
The nickname “cable” comes from the history of transmitting quotes through submarine cables that run through the Atlantic Ocean. Before the US dollar took its place, the pound (sterling) was the world’s reserve currency.
The pound-dollar and the euro-dollar (EUR/USD) have a lot in common. Although the UK did not introduce the euro, its economic strength is still built on its strong ties to the EU. Secondly, unlike the dollar-Swiss franc and the dollar-yen, the US dollar has a quote currency in both the pound-dollar and euro-dollar currency pairs. This means that the pound-dollar and euro-dollar are more likely to rise when the US dollar weakens and likely to fall when it strengthens.
The Bank of England and the US Fed, which monitor the movements of the two currencies that make up the pound-dollar, have great influence over these currencies, as do all other currency pairs and central banks in each country.
- Dollar/Swiss franc trading (USD/CHF):
You may find it odd that the Swiss franc, a Swiss currency that is not in the global economy like the United States, Japan and the EU, is in the top four major currencies.
The simple reason is that the Swiss franc is recognized as a safe haven for assets. Traders use the Swiss franc as an effective low-risk investment destination in volatile economic conditions and in times of rapid market volatility. It can be said that Switzerland’s long-standing trust in its country, such as stability, security, and neutrality, is a factor in establishing this position.
The Swiss franc is usually in line with the euro’s price movements when market volatility is low. This is because Switzerland is closely linked to the Euro economy.
Cross currency
- Euro/Pound Trading (EUR/GBP):
The Euro/pound is an important currency pair that supports the economic activity of the UK and EU economies. In particular, there is a renewed focus on the euro/pound trend since the Brexit decision on June 23, 2016.
Euro/yen trading
The Euro – the second-largest in circulation in the world, can play the role of the US dollar in a currency pair. One example is the Euro/Yen pair. Both the US dollar and the yen are considered safe havens, so it is possible to eliminate its effect by combining it with the Euro instead of the US dollar.
- Euro/Swiss franc trading:
Like the Euro/pound and Canadian dollar/US dollar relationships, the Euro/Swiss franc is more closely linked to each other’s economic relationships. In fact, for four years since 2011, the Swiss National Bank actually pegged the value of the Swiss franc to the Euro.