Major Pairs

In forex trading, these four major currency pairs are the most popular:

EUR/USD: The Euro versus the U.S. dollar

USD/JPY: The U.S. dollar against the Japanese yen

GBP/USD: The British pound versus the U.S. dollar

USD/CHF: The U.S. dollar against the Swiss franc

EUR/USD: This currency cross indicates the amount of US dollars required to purchase one unit of the single European currency, the euro. The pair is affected by economic and political factors influencing the US and European countries. A wide range of other determinants that remain key to the currency trading such as trade flows, mergers and acquisitions and many other factors that influence supply and demand are also crucial. For instance, the interest rate differential between the US and the EU set by the US Federal Reserve (FED) and the European Central Bank (ECB) impacts the value of this currency pair the most. Another factor are open market operations by central banks, which may or may not intervene to stabilize the vlaue of a currency or the financial system itself.

USD/JPY: This currency cross indicates the amount of yen required to purchase one US dollar. The pair is affected by political and economic factors related to each one of the pair's sides – The U.S. and Japan. A wide range of other determinants that remain key to the currency trading such as trade flows, mergers and acquisitions and many other factors that influence supply and demand are also crucial. For instance, the interest rate differential between the US Federal Reserve (FED) and the Bank of Japan (BoJ) impacts the value of these currencies when compared to each other. For example, when the Fed starts to increase its key interest rate as the economy is running hot, the U.S. Dollar tends to strengthen. The same holds true if a central bank is cutting rates or introducing quantitative easing.

GBP/USD: This currency cross indicates the amount of US dollars required to purchase one British pound. The pair is affected by political and economic factors related to each one of the pair's sides – The U.S. and the UK. A wide range of other determinants that remain key to the currency trading such as trade flows, mergers and acquisitions and many other factors that influence supply and demand are also crucial. For instance, the interest rate differential between the US Federal Reserve (FED) and the Bank of England (BoE) impacts the value of this currency pair. For example, when if the Fed started to intervene in the open market operations, to strengthen the US dollar, the value of sterling vs. the greenback would decline. Another example is how politics and the Brexit outcome caused the British Pound to tumble in 2016.

USD/CHF: This currency cross indicates the number of Swiss francs required to purchase one US dollar. The pair is affected by political and economic factors related to each one of the pair's sides – The U.S. and the UK. A wide range of other determinants that remain key to the currency trading such as trade flows, mergers and acquisitions and many other factors that influence supply and demand are also crucial. For instance, the interest rate differential between the US Federal Reserve (FED) and the Swiss National Bank (BoE) impacts the value of this currency pair. For example, when the Swiss National Bank pegged the value of the Swiss Franc to the euro at 1.20 in 2011, that became the floor in the EUR/CHF currency pair.

Commodity Pairs

Currency pairs that have the highest degree of correlation with commodities values are the Canadian (CAD), the Australian (AUD) and the New Zealand (NZD) dollar. While the AUD is closely correlated to movements in bullion prices, copper and Iron Ore, the CAD is closely linked to oil markets while the NZD is highly influenced by dairy prices.

When taking trading decisions, investors are suggested to take a look at the respective commodities that influence the price of the currency of choice. They tend to affect the economy and currency of the respective country. For instance, if gold prices are predicted to keep rising, it would be fair to assume that the Australian dollar could rise since historically it is 80% positively correlated to gold.

Similarly, the Canadian dollar takes cues from oil prices; Canada is the biggest oil exporter to the U.S. and therefore, changes in oil prices influence the country's economy. Rising oil prices will push the CAD higher and vice versa. Historically the correlation between the currency and the commodity is close to 81%.

Major commodities influencing the value of the NZD/USD are agricultural: primarily dairy and dairy products. New Zealand is the top exporter of milk and milk products, of which butter and cheese represent 21.2% of the country’s total exports. It is also the 14th largest supplier of agricultural goods to the United States, with the value of the exposrts amounting $USD2.2 billion. Traders need to be vigilant and aware of commodity data releases before taking any positions in the kiwi dollar.

Cross-Pairs

Cross pairs refer to a set of different currency combinations that trade without the US dollar as being the base currency. For example, currency pairs such as EUR/GBP, GBP/JPY, EUR/CHF, etc. are referred to as cross-currency pairs. In the older days of forex trading, if anyone wanted to exchange between such currencies, one would first have to convert that currency into US dollars and then convert dollars into the currency desired.

For instance, if a person wanted to exchange pound sterling into Swiss francs, they would first have to convert their GBP into U.S. dollars and then convert these dollars into francs. With the introduction of electronic trading, better and sophisticated technology and the evolution of the forex market it has become way easier to trade cross currency pairs.

Currency crosses can be a better option offering broader trading opportunities at times of low USD volatility

Cross currency pairs could provide more and sometimes better trading opportunities since there is no linkage to the value of the US dollar and trading is influenced by other factors to the majors. So instead of the conventional dollar-based currency pairs, traders nowadays are more getting more interested in trading currency crosses.

As an example, if all US dollar-based pairs are range-bound then there will be fewer trading opportunities, but crosses might be trending and therefore give traders a break.