Major currency pairs are the most liquid since they are being traded the most in the Forex market. Some of the major currency pairs in the market include GBP/USD, EUR/USD, and USD/JPY. Learning about these currency pairs is crucial because these factors also help determine the things that influence price movements when trading Forex.
What are Currency Pairs?
Currency pairs is a term used to refer to two different currencies. This is the amount that a trader needs to pay for the currency of another country. For instance, the EUR/USD is priced at 1.13. This goes to show that the trader will be able to exchange 1 Euro for 1.13 USD. So when there is a change with the currency value, there will also be changes, relative to another currency.
The Major Currency Pairs
Depending on the trader, there are different definitions of major currency pairs. However, the most famous of them all is the USD/CHF, EUR/USD, USD/JPY, and GBP/USD. As for the cross pairs and commodity currencies, they are also under the category of major currencies.
These four highly traded currency pairs are known to have high volumes of trades and represent the largest economies of the world. With higher volume also makes smaller spreads.
This currency pair has a nickname ‘Fiber’ and currently the most traded pair of different currencies with over 23% of transactions made in 2016. This is already given since the US Dollar and Euro are representing the two world’s largest economies, the European Union and the US Economy.
Due to the popularity of EUR/USD trades are always at tight spreads. Since there is a high volume of trades every day, it has reduced differences with the price of bid and offer.
These types of currencies are very much influenced by commodity prices. An example of Commodity currencies is Kiwi, Aussie, and Loonie. As for the Australian Dollar/US Dollar (AUD/USD), known as Aussie, they are mainly affected by the production of wheat, mining commodities, wool, and beef. Most of the time, when China does well, Aussie also does the same since these countries are known to be trading Forex partners.
Cross Currency Pairs
Major and minor currency pairs mostly include USD, but this time, Cross Currency Pairs don’t include USD. In the olden days, currencies need to be exchanged for US Dollars before it gets exchanged for other currencies. Popular cross currency pairs are EUR/CHF, EUR/GBP, and EUR/JPY.
Cross pairs mostly work by exploring the relationship of two countries like the European Union and the UK economy.
Factors That Can Possibly Affect the Rates of Major Currencies
The top 4 factors that create a great effect on the prices of major currency pairs including interest rates, politics, economic data, and volatility.
This important news greatly influences the inflation data of a specific country.
If there are elections, trade wards, scandals, and corruption, it will drastically affect the economy, causing the currency pair to depreciate.
This influences the rate of currencies, nonfarm payrolls, purchasing managers index, and retails payrolls.
In the market, there are abrupt changes and you cannot keep yourself away from it.