Forex trading success is down to profit-making, and one of the biggest factors in yielding the best profits is down to the forex pairs you choose to trade. A currency pair is two different currencies, with one currency’s value being quoted against another. The first listed currency is called the base currency, and the second is the quote currency.
EUR/USD is the most traded currency pair on the market, with EUR/USD transactions accounting for 24.0% of daily forex trades. The popularity of the EUR/USD pair derives from the fact that it is representative of the world’s two biggest economies, the European single market, and the US.
Liquidity is high in EUR/USD transactions due to the high daily volume, which generally results in tight spreads. Liquidity and tight spreads are enticing as large trades can be made without causing major impacts on the market.
The exchange rate of EUR/USD is determined by a number of factors, with one of the largest being the interest rates set by the European Central Bank (ECB) and the US Federal Reserve (Fed). The currency with the higher interest rates will see an increase in demand because higher interest rates give a better return on an initial investment.
‘The Gopher’ USD/JPY
The USD/JPY currency pair consists of the US dollar and the Japanese Yen. It’s the second most traded forex pair on the market, accounting for 13.2% of all daily forex transactions.
USD/JPY is also known for its high liquidity, as the Japanese yen is so dominant in currency trading in Asia and the US dollar is the largest in the world.
The Bank of Japan sets interest rates for the Japanese economy much like Fed and the ECB, leading to changes of value for the yen against the US dollar.
‘Cable’ GBP/USD
GBP/USD pair accounts for 9.6% of all daily forex transactions.
The strength of GBP/USD comes from the strength of the UK and US economies. Economic growth drives the strength of currencies so in this case if the UK economy is growing at a faster rate than the US, the pound will strengthen against the dollar and vice versa.
‘The Aussie’ AUD/USD
AUD/USD makes up 5.4% of daily forex trades. The value of the Australian dollar is entwined with the value of its exports as raw materials such as iron and coal account for a significant amount of the country’s GDP. With AUD reliant on these commodities, trading AUD can be profitable when the value of these goods is up as it strengthens the currency against the dollar. If these goods devalue it will cause a decline in the value of the AUD against the USD.
The interest rate of the AUD is controlled by the Reserve Bank of Australia.
‘The Loonie’ USD/CAD
USD/CAD transactions made up 4.4% of daily forex trades. The strength of the Canadian dollar is closely reliant on the price of oil and gas because of the high amount of GDP they account for in the Canadian economy.
And with oil prices in the world markets are in USD, Canada is able to earn a large supply of USD through its oil exports. With this in mind it means that if the price of oil increases, the CAD will likely strengthen against the USD.
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Originally published at https://sticpay.com on January 6, 2022.
