The four most commonly traded Forex currency pairs are called Majors. These four pairs are:

  • EUR/USD: The euro and the U.S. dollar.
  • USD/JPY: The U.S. dollar and the Japanese yen.
  • GBP/USD: The British pound sterling and the U.S. dollar.
  • USD/CHF: The U.S. dollar and the Swiss franc.

There are another two pairs that are grouped with these four and often considered Majors as well. They are:

  • USD/CAD: The U.S. Dollar and the Canadian Dollar
  • USD/AUD: The U.S. Dollar and the Australian Dollar

The Majors are the most liquid and traded the most often.  You will notice that all of these pairs include the U.S. dollar and the reason for that is that the U.S. dollar is more international commerce takes place with the U.S. dollar than any other form of currency.  Anyone needing to conduct business anywhere in the world will want to start with U.S. dollars.  The U.S. Dollar is accepted in most countries in addition to that country’s local currency so it is the most useful currency to hold.  All of this makes the U.S. dollar the unofficial worldwide currency.

In addition, the U.S. dollar is used as a point of reference for many countries all over the world and these countries link their own currency to the U.S. dollar.  Therefore, it is said that the U.S. Dollar, or the major pairs drive the entire Forex market. Countries connect their interest rates to the U.S. dollar to try to stabilize their economy.  Most of the other world markets are connected to the U.S. dollar.  The commodities market for example, and the prices of commodities are not only moved by the supply and demand but by the value of the U.S. dollar as well.

EUR/USD

The two most powerful economies in the world are the United States and the European union.  The factor that influences the price of this currency pair the most is the relative strength of each of these economies. Multinational companies often operate in both the U.S. and Europe and as a result, they get involved in trading this pair because both currencies are useful to them and they want more of which ever currency will go further at any given time.  This contributes to the desirability of this currency pair significantly.  The liquidity and volatility make this an excellent choice for newer Forex traders.

USD/JPY

Japan has the second most active national economy in the world and the largest one in Asia.  This makes the Japanese Yen an active player in the Forex market.  Because of the tremendous amount of business dealings between Japanese and U.S companies and the stability of the Japanese economy, this is an important pair to consider for Forex trading.

GBP/USD

This pair has very tight bid-ask spreads because it has high liquidity.  Again, it is important to look at the political climate and the economic strength of the two countries when looking to trade this pair.  The important thing to watch for is whether Britain will join the European Union because it will affect the GBP drastically.

USD/SWF

Even though it is less liquid than the euro and the pound the Swiss franc is considered an easy currency to trade.  The factor that changes the Swiss franc the most is economic and political upheaval elsewhere in the world.  The franc is considered a safe place to put your funds.  The interesting part of that is so is the U.S. Dollar so it is not always clear how the turmoil will affect this pair.

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