What Are the Major Currencies and Most Commonly Traded Currency Pairs in The Forex Market?

The last section taught you about the 3 major currency trading centers of the world and the trading sessions that make up the day. Lets now look at the main currencies that you will be trading.

 

What Are the Major Currencies in Forex Market?

US Dollar (Greenback/USD)

Many people think that the US Dollar is loosing its status, there is no doubt that as of the writing of this and most likely for the foreseeable future, the US Dollar still reigns supreme over all other currencies of the world. The price for the majority of traded commodities such as oil is quoted in US Dollars and the US Dollar represents over 60% of the worlds currency reserves (the currency held by central banks). Combine this with the fact that the US Economy is by far the largest economy in the world results in a market where over 80% of all currency transactions involve the US Dollar. As you can probably imagine after hearing this, Forex traders pay heavy attention to what is happening with the US Economy, as this has a very direct affect not only on the US Dollar but on every other currency in the world as well.

The Euro (EUR)

Introduced in 1999 as part of an overall plan to unify Europe into something known as the European Union. The differing laws and currencies of the European countries were making them less competitive in the global market place. To try and fix this problem and create one entity with a common set of laws and a common currency, 15 countries joined what is now referred to as the European Union and 12 of those countries adopted the Euro as their common currency. While the economies of the individual countries that make up the Euro Zone don’t come anywhere close to the size of the US Economy, when combined into one Euro Zone economy they do, and therefore some say the Euro will eventually rival or even replace the Dollar as the main currency of the world.

What Are the Major Currencies and Most Commonly Traded Currency Pairs in The Forex Market?

Japanese Yen (JPY)

Japan, which is the second largest individual economy in the world, has the third most actively traded currency. After experiencing impressive growth in the 60’s, 70’s and early 80’s Japan’s economy began to stagnate in the late 1980’s and has yet to fully recover. To try and stimulate economic growth, the central bank of Japan has kept interest rates close to zero. It is also important to understand at this stage that Japan is a country with few natural energy resources and an export oriented economy, so it relies heavily on energy imports and international trade. This makes the economy and currency especially susceptible to moves in the price of oil, and rising or slowing growth in the major economies in which it trades.

British Pound (GBP)

While the United Kingdom is a member of the European Union it was one of the three countries that opted out of joining the European Monetary Union which is made up of the 12 countries that did adopt the Euro. The UK’s currency is known as the Pound Sterling and is a well respected currency of the world because of the Central Bank’s reputation for sound monetary policy.

Swiss Franc (CHF)

While Switzerland is not one of the major economies of the world, the country is known for its sound banking system and Swiss bank accounts, which are basically famous for banking confidentiality. This, combined with the country’s history of remaining neutral in times of war, makes the Swiss Franc a safe haven currency, or one which attracts capital flows during times of uncertainty.

Australian Dollar (AUS)

“Tha Aussie” is heavily dependent upon the price of gold as the Australian economy is the world’s 3rd largest producer of gold. As of this lesson interest rates in Australia are also among the highest in the industrialized world; creating significant demand for Australian Dollars from speculators looking to profit from the high yield the currency and other Australian Dollar denominated assets offer.

New Zealand Dollar (NZD)

“The Kiwi” is heavily dependent on commodity prices, with commodities representing over 40% of the countries total exports. The economy is also heavily dependent on Australia who is its largest Forex trading partner. Like Australia, as of this lesson New Zealand also has one of the highest interest rates in the industrialized world, creating significant demand from speculators in this case as well.

Canadian Dollar (CAD)

“The Loony”. Like its commodity currency brothers, the Canadian Economy, and therefore the currency, is also heavily linked to what happens with commodity prices. Canada is the 5th largest producer of gold and while only the 14th largest producer of oil, unbeknownst to most; it is also the largest foreign supplier of oil to the United States. Its relationship with the US does not end here either as the country exports over 80% of its goods to the United States, making the economy and currency very susceptible to what happens not only with commodity prices, but to the overall health of the US Economy as well.

What Are The Most Commonly Traded Currency Pairs in The Forex Market?

The most liquid and thus the most widely traded major currency pairs on the Forex market. Their prices are less volatile than that of smaller less-known foreign currencies. Trade Major Currencies involving the Majors constitutes up to 90% of all trades on the Forex Market. The best pairs in the Forex market are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, NZD/USD and USD/CHF.

The above trading major currencies units and combinations thereof (EUR/JPY, GBP/JPY and EUR/GBP) make for 95% of all trading.

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