Learning the characteristics of currency pairs will help you understand the pattern of price movement that will help your analysis. Here are the characteristics of the four major pairs in forex trading.

Currencies in the forex market are traded in pairs. Each currency has different forces behind it, as their country of origin too, has different characters. The mix of these characters is what will make prices move higher or lower. To gain profits from trade, the first thing we should do is learning their characteristics. Thus, this article is going to talk about some of the most traded currency pairs. For a start, there are four major forex pairs: EUR/USD, USD/JPY, GBP/USD, and AUD/USD.


Characteristics of EUR/USD

According to the latest BIS Triennial Survey released in September 2013, EUR/USD is the most traded pair at an average of 24.1% a day. It is an actively traded pair with moderate volatility which makes it compatible for either scalping or day trading. There are always enough movements to take daily profits, especially at times around the release of fundamental news.

Euro is the currency used by the European Union and served as the national currency in 19 of 28 EU countries. Euro is the second biggest currency in the world after USD, despite not all of the EU members adopted it. It was adopted only by Austria, Belgium, France, German, Netherland, Greek, Italy, Spain, Ireland, Luxembourg, Malta, Portugal, Slovakia, Slovenia, Cyprus, Estonia, Finland, and Latvia.

The euro currency is extremely sensitive to economic growth. As the main user of Euro is a ion of countries with differing economic views and powers, their growth has been constrained by unresolved financial woes. When you trade EUR, you have to observe the dynamics of the Eurozone, mainly Germany. Apart from that, you should always check on what the European Central Bank (ECB) says or do. Euro, as is any other currencies, is very easily influenced by the central bank's policies and orientations.


USD, the United States of America's currency, by itself is the most traded currency in the world. Of course, the USD is the world's reserve currency, so it is very influential. As opposed to the Euro that's sensitive to growth, the greenback is susceptible to changes in commodities prices like crude oil. The US imports commodities to make its economy keeps revolving, and so, commodities price changes have immediate effect. Besides, announcements from its central bank, the Federal Reserve of America (The Fed), could change trend movement for quite a long period.


Characteristics of USD/JPY

USD/JPY is the second most traded pair with a percentage of 18.3 on a daily average. The Yen was famous as a safe-haven currency, although it has diminished in recent times as Japan struggles to lower its exchange rates. However, as Japan is one of the most stable countries in the world with a relatively steady growth projection, many investors still admire its strength and flocks to the Japanese Yen whenever the market turns into turmoil.


Trading USD/JPY means that we have to pay attention to policy changes from both countries, especially monetary policy changes from their central banks: the Fed and Bank of Japan (BoJ). For the time being, BoJ has priority in low JPY to boost exports and economic growth, therefore its trading risk is considerably high. Also, Japan's industrial/manufacturing data are moderately influential toward Yen.


Characteristics of GBP/USD

GBP/USD has been the third most traded pairs, and in the BIS survey, it retained an average of 8.8% trade a day. The pair is famous as one of the most volatile trades in the financial market. It is not advisable for beginner traders to trade this currency, as prices tend to move so fast it could give us whiplashes. In a few minutes, the price could move 100 points or more. Even more so when there are high impact news releases.


The key that unlocks growth in the UK economy is consumer spending. That's why employment reports, retail sales, and housing sales data are very influential toward pound sterling. The UK's central bank, Bank of England (BoE) has a relatively lower influence than the Fed. Nevertheless, you should also consider their decisions when trading this pair.


Characteristics of AUD/USD

The fourth most traded currency, AUD/USD, could give you more enjoyable trading. Its price movement is approximately half that of the EUR/USD and only 3/4 of GBP/USD. There are several determinants in AUD/USD trading and one of the most important is China's economy.

You may wonder, what does China do in Australian and US currency trade? Well, China is quite influential in both countries, more so in Australia. The vast growth of Australia could be contributed to the high demand for mining and agricultural products from China. And so, the ups and downs of China's GDP, as well as projections in the manufacturing and other industries, have a strong impact on AUD/USD. Besides, well, once again we should note that the central bank is important. The Fed, for sure, and The Reserve Bank of Australia (RBA). RBA's decision to lower interest rates has been known to instantly drag the Australian Dollar down.


Well, those are what you need to know about the fundamentals of the four major pairs. Have you found one that piques your interest? if not, don't worry, we have more pairs for you to review. Next, we are going to talk about the characteristics of the next three majors, that is USD/CAD, USD/CHF, and USD/NZD.


Next in the Series:
Currency Pairs Characteristics (2): CAD, CHF, And NZD