How to Trade Major Currency Pairs?

The main currency pairings are among the most frequently traded on the foreign exchange market. The prices of these pairings often fluctuate within narrower ranges, although their moves can still be unpredictable.

This article discusses some of the most widely traded currency pairings, including EUR/USD, USD/JPY, and GBP/USD. Continue reading to explore live prices for the major currency pairings and to discover the variables that influence their price fluctuations.

Key Takeaways:

1. What are Currency Pairs？

2. The Seven Major Currency Pairs

3. What influences price fluctuations？

4. Tips for Trading Currency Pairs

What are Currency Pairs？

A currency pair is the quoting of two distinct currencies. It is the amount of one currency required to purchase one unit of another currency. When a trader gets quoted EUR/USD 1.13, it indicates that he or she may exchange 1 Euro for 1.13 US Dollars.

When a currency's value fluctuates, it does so relative to another. If the EUR/USD exchange rate moves from 1.13 to 1.15 tomorrow, it indicates that the Euro has risen relative to the US dollar, or that the US dollar has depreciated relative to the Euro, since it will cost more US dollars to acquire 1 Euro.

The Seven Major Currency Pairs

The seven major currency pairs account for more than 70% of the global foreign exchange market trading volume ($6.6 trillion) and are the most frequently traded and highly liquid in the global market, providing traders with more trading opportunities. In the foreign exchange market, liquidity is the key factor that drives currency prices up and down. The higher the liquidity, the more active the currency pair is traded, the more trading opportunities, the more traders it attracts and the smaller the spreads on the pair become. However, individual currency pairs can exhibit their own characteristics, as follows.

1. EUR/USD

This is the most popular, liquid and frequently traded currency pair in all OTC forex markets. By volume, it accounts for about 30% of total global forex trading volume. EUR/USD is considered a risk-taking currency and generally performs well in the context of global economic growth, booming stock markets and increased investment demand.

In the medium to long term, it usually tends to move in the same direction as the British pound, or GBPUSD exchange rate.

The largest swings generally occur between 0300-0530 and 0830-1100 EST, the European trading session and the New York trading session, with a daily average true range (ATR) of 100-120 pips; the usual spread is between 1 and 2 pips.

2. USD/JPY

Another popular currency pair among traders, the second most traded globally, accounting for about 16-18% of total FX volume, USD/JPY represents the sentiment of the dollar as it accurately predicts the bullish or bearish nature of the dollar.

The correlation with USD/CHF is significant as both currencies are considered safe havens in times of market downturns (USD, CHF and JPY are all safe-haven currencies) and both move at essentially the same pace.

The most active trading hours are between 2000~2230 and 0830~1100 EST, with a daily average true range (ATR) of 80-90 pips; the usual spread is between 2-3 pips.

3. GBP/USD

The third most traded volume in the Forex market, accounting for about 10-12% of the total volume, GBP/USD is also a risk taker and usually performs well in a favorable economic environment in Europe; it is most actively traded during 0300 - 0530 and 0830 - 1100 EST, with a positive correlation between it and EUR/USD --The trend is usually convergent, with a daily average true range (ATR) of 120-140 pips; the usual spread is between 1 and 2 pips.

4. USD/CAD

Related to commodities, one of the stars of the commodities portfolio, accounting for about 5% of total forex trading, USD/CAD is an export-oriented currency pair and, as such, trade between the US and Canada has a strong influence on its price action. The economic situation in the United States (Canada's largest trading partner) greatly affects both countries, as more than 60% of Canada's exports go to the U.S. There is a significant negative correlation with the price of oil (the largest export commodity), with the two tending to move in opposite directions. Simply put, if oil prices fall, the pair rises and vice versa. The most active trading hours are between 0800 and 1130 EST, and the average daily true range (ATR) is 80-90 pips; the typical spread is between 3-4 pips.

5. AUD/USD

About 6% of the total global foreign exchange transactions. Another heavyweight in the commodity triumvirate, AUD/USD is also a heavily export-dependent currency pair with a focus on commodities. Since China is Australia's largest trading partner and recipient of commodities (gold, silver, copper, etc.), the state of the Chinese economy has a significant impact on its price action and is positively correlated with its neighbor, the NZD/USD, which is also a commodity-related pair. The most active times to trade this currency are between 2000~2330 and 0830~1100 ET. The average daily true range (ATR) is 60-70 pips and the typical spread is between 3-4 pips.

6. USD/CHF

This is the second safe-haven portfolio, accounting for about 4% of total global FX trading. USD/CHF tends to perform well in positive sentiment and fall in market downturns. The Swiss central bank (SNB) also has a reputation for intervening in FX markets and manipulating exchange rates unlike other central banks, and it tends to have a strong positive correlation with other safe-haven currencies, such as the USD/JPY trend. The most active times to trade this currency are between 0300~0500 and 0830~1100 EST, with an average daily true range (ATR) of 60-70 pips; the typical spread is between 4-5 pips.

7. NZD/USD

The last commodity-related currency pair, accounting for about 2% of total FX volume, the NZD/USD has tended to move well as commodity prices have risen. The global demand for commodities bodes well for it and vice versa. The small size of New Zealand's economy means that the exchange rate will move more in the event of a change in global demand, positively correlated with AUD/USD. The most active times to trade this currency are between 2000~2330 and 0830~1100 EST, with a daily average true range (ATR) of 50-60 pips; the usual spread is between 4-5 pips.

What influences price fluctuations？

1. Political Situation: international and domestic political situation changes have a great impact on the exchange rate, the situation is stable, the exchange rate is stable; the situation is turbulent, the exchange rate fell. The aspects that need to pay attention to include international relations, party struggles, important government officials, unrest, riots, etc.

2. Economic Situation: the comprehensive effect of a country's economy in all aspects is the most direct and the most important factor affecting the exchange rate of the national currency. The main considerations are the level of economic growth, balance of payments, inflation level, interest rate level and other aspects.

3. Military dynamics: War, local conflicts, riots, etc. will cause insecurity in a certain region and will have a negative impact on the exchange rate of the relevant region as well as the weaker currencies, while the exchange rate of the currencies of countries far from the place of the event and traditional safe-haven currencies will be favorable.

4. Government and Central Bank Policies: The government's fiscal policy, foreign exchange policy and central bank monetary policy play a very important, sometimes decisive, role in the exchange rate. Such as the government announced the devaluation or appreciation of the national currency; central bank interest rates rise and fall, market intervention, etc.

5. Market Psychology: The psychological expectations of foreign exchange market participants, seriously affect the direction of the exchange rate. For a currency appreciation or depreciation, the market tends to form its own views, in the case of a certain consensus, will be in a certain period of time to influence the exchange rate changes, which may occur when the rise and fall of the exchange rate and the fundamentals of the complete separation or central bank intervention is ineffective.

6. Speculative Trading: With the acceleration of the process of financial globalization, flooding the foreign exchange market in the international lending money more and more huge, these funds are sometimes controlled by certain speculative institutions, due to its very huge transactions, and more hedging methods, sometimes have far-reaching impact on exchange rate movements. For example, Quantum Funds blocked the British pound and Thai baht, causing their exchange rates to depreciate sharply in a short period of time, etc.

7. Unexpected Events: Some major unexpected events will have an impact on the market psychology, thus causing the exchange rate to change, and the extent to which they cause results will also have an impact on the long-term changes in the exchange rate. For example, the 9/11 incident caused the U.S. dollar to depreciate significantly in a short period of time, etc.

Tips for Trading Currency Pairs

- Start modestly: Beginners in forex trading should invest only a part of their overall investing money initially. Once you have achieved some expertise, you may gradually increase your investment.

- Trade using money you do not require: Never utilize funds that you may require for other responsibilities. Always certain that you solely utilize idle funds.

- Set the proper goals and objectives: Before engaging in forex trading, you should establish attainable objectives. This will not only help you maintain your composure, but also enable you to devise an acceptable approach.

- Establish a trading strategy: Maintain a trading plan at all times. Never enter a trade without suitable entry and exit strategies.

- Never deviate from your approach: Always adhere to the trading plan you've devised. Never vary from your approach, regardless of how profitable a deal may appear when you do so.

- Conduct thorough research: When it comes to currency trading, there are a multitude of factors and events that affect pricing. Before engaging in a transaction, it is essential to undertake exhaustive and detailed study.

Conclusion

In this chapter we covered the major currency pairs, including its concepts, the seven major currency pairs, influencing factors and trading techniques. However, investors still need to have a better understanding of real-world trend properties and slowly digest them and integrate them into their own analysis system. I hope the above instruction is beneficial to you.

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