There are different definitions of the major forex currency pairs, but the four most commonly traded pairs include EUR/USD, GBP/USD, USD/JPY and USD/CHF. Other major currency pairs include USD/CAD, AUD/USD and NZD/USD. The major currency pairs are generally comprised of the currencies of the developed world and the world's savings currency, the US dollar. There are different reasons that affect the performance of major currency pairs and this post will analyse the various fundamental factors that affect these pairs.
Trading EUR/USD
The EUR/USD currency pair, also known as the Euro against the US Dollar. Although the euro only became widely circulated in 2002 and EURUSD is the newest currency pair, it is the most traded currency pair on a global scale. Much of the reason the pair is so popular is because it is made up of the world's two largest economies, the United States and the European Union.
The main factors affecting EURUSD are the Federal Reserve and the European Central Bank (ECB). Interest rate decisions made by both the ECB's governing council and the Federal Open Market Committee (FOMC) can have a huge impact on the performance of the pair.
When the Fed raises interest rates, the dollar strengthens against the euro, which means that the currency pair is weaker; the reverse is also true, which means that if the ECB raises interest rates, the currency pair will also strengthen as the euro strengthens.
Since this is the most commonly traded currency pair, it is therefore highly liquid and volatile. If you are interested in the EURUSD currency pair, Exness offers very small spreads.
Trading USDJPY
USDJPY, the US Dollar/Japanese Yen, is also a popular currency pair. This pair is quite different from other pairs as the value per pip is quite high compared to other pairs, the reason for the high pip value of USDJPY is that the Japanese Yen has a lower value compared to the US Dollar.
The Bank of Japan, the central bank of Japan, in order to stimulate inflation and economic growth in the country, has for many years implemented an easy monetary policy, maintaining interest rates at very low, near-zero levels, and at times, negative interest rates, thus keeping the yen at a depressed level for many years.
The yen is widely seen as a safe haven currency, meaning that it usually appreciates when the market experiences higher volatility. For example, investors sell dollars out of concern for trading, and the yen appreciates because it is seen as a safe haven currency.
Trading GPBUSD
GPBUSD, or GBPUSD, is also known as thecable to refer to the data transmission cable that runs across the Atlantic Ocean and connects the UK and the U.S. GBPUSD is also the oldest currency pair and is considered one of the strongest as the pound was the world's reserve currency before the U.S. dollar became the world's reserve currency.
As the UK was once a member of the EU, sterling strength was inevitably linked to euro strength in the past. Then, because the UK is no longer a member of the EU, the value of the pound is now largely determined by the policies set by the Bank of England and other UK economic indicators.
Trading USDCHF
It is indeed surprising to see USDCHF among the 4 major currencies, which is the US dollar against the Swiss franc. Switzerland is not a large economy, but the importance of the Swiss franc in the international markets cannot be underestimated due to its status as a "safe haven".
As a safe haven type of investment, the Swiss franc typically rallies to highs when there is uncertainty in the global financial markets and drops to lows when the foreign exchange markets are calm. Given that Switzerland is a member of the European Union, the Swiss franc sometimes performs similarly to the euro when there is low volatility in global financial markets.
commodity currency
Commodity currencies refer to the Canadian dollar, the Australian dollar and the New Zealand dollar, as these are the currencies of the major commodity-exporting countries.
Trading USDCAD
The Canadian dollar is known as the "loonie" (a waterfowl). Because Canada is rich in natural resources such as oil, natural gas and timber, the performance of the Canadian dollar is closely tied to commodity prices. However, it is oil that has the greatest impact on the Canadian dollar, as the performance of the Canadian dollar is a direct reflection of the price movement of WTI (West Texas Intermediate, also known as light crude oil).
In general, the Canadian dollar usually rallies when WIT moves higher and falls when WTI prices move lower. The performance of the Canadian dollar is also tied to the U.S. dollar, as the U.S. is a major export market for Canadian goods. The Bank of Canada is also responsible for setting interest rates related to the Canadian dollar.
Trading AUDUSD
The Australian dollar, or "aussie" in English, is also considered a commodity currency as commodities play an important role in the Australian economy. Australia is a major exporter of minerals such as iron ore, gold and coal. Australia also exports agricultural products such as beef, wool and wheat.
Australia is one of the strongest economies in the developed world as it has not experienced a recession since 1991. In addition to being influenced by commodity prices, the performance of the Australian dollar is also influenced by the monetary policy decisions of the Reserve Bank of Australia.