Currency Pairs

With Forex you can enjoy trading 24 hours a day and 5 days a week. The beauty of Forex is traders have the luxury of highly leveraged trading with lower margin requirements than equity markets using which they can earn huge revenues in just simple clicks, but one needs to know the inside out of trading else it can go wrong, and traders have to bear some losses as well.

  1. EUR/USD: The EUR/USD currency pair tends to have a negative correlation with USD/CHF and a positive correlation with the GBP/USD. This is due to the positive correlation of the euro, the British pound, and the Swiss franc.

  2. USD/JPY: The next most actively traded pair has traditionally been the USD/JPY pair. This pair has been sensitive to political sentiment between the United States and the Far East. The pair tends to be positively correlated to the USD/CHF and USD/CAD currency pairs due to the U.S. dollar being the base currency in all three pairs.

  3. GBP/USD: The GBP/USD pair tends to have a negative correlation with the USD/CHF and a positive correlation to the EUR/USD. This is due to the positive correlation between the pound, euro, and the Swiss franc.

  4. USD/CAD: The USD/CAD currency pair tends to be negatively correlated with the AUD/USD, GBP/USD and EUR/USD pairs due to the U.S. dollar being the quote currency in these other pairs.

  5. USD/CHF: The USD/CHF currency pair tends to have a negative correlation with the EUR/USD and GBP/USD pairs. This is due to the strong positive correlation between the Swiss franc, pound and euro. The franc has long been thought of as a safe haven for forex traders in times of political unrest.

  6. AUD/USD: The AUD/USD currency pair tends to have a negative correlation with the USD/CAD, USD/CHF and USD/JPY pairs due to the U.S. dollar being the quote currency. As well, the correlation with the USD/CAD is also because both the Canadian and Australian dollars share a positive relation with each other, as both currencies are commodity block currencies.

The most important thing to understand is that the forex market is primarily driven by overarching macroeconomic factors that influence the decisions of the traders who ultimately decide the value of the currency at any given point in time.

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