The global foreign exchange market has over 128 currency pairs traded across exchanges and brokers and is worth $6 trillion in daily volume. Currencies are traded in pairs for convenience and to reflect their relative value; some currencies have more trading volume and relevance than others based on their relative value and economies.
Analyzing Forex Pairs
Analyzing pairs for forex trading involves studying historical price data and fundamental factors driving the economy and exchange rates. The on-chart analysis includes identifying important price levels, such as support and resistance, volumes, demand and supply, and momentum, to predict the price.
Traders also discover the relative ‘ease’ of trading certain pairs more than others due to the higher precision of analysis and liquidity, which makes it possible to buy and sell currencies in the market.
Note the presence of the US dollar in all but one of the listed pairs; the US dollar is the world’s most liquid currency. The forex market will also react to the US dollar, especially as the US approaches the election season. Discover the best currency pairs that traders prefer for various reasons.
NB: All prices mentioned were taken between 14:59 and 16:00 on May 31, 2024, UTC+1.
EUR/USD(Euro/US Dollar)
The EUR/USD is the most traded forex pair, thanks to the economic strength of the US and Eurozone. The EUR/USD historically trades with the EUR slightly higher than the USD, with both currencies briefly hitting parity in 2022 and maintaining close values since then.
The pair currently trades at 1.0867 and is generally less volatile than other forex pairs. The interest rate decisions of respective banks (the Federal Reserve and the European Central Bank) will impact price direction.
USD/JPY (US Dollar/Japanese Yen)
Widely considered two of the world’s safe-haven currencies, the USD/JPY pair is the second most traded in the forex market. They represent two of the leading economies representing the West and Asia, respectively. The USD/JPY pair is popular with traders who exploit interest rate differentials. Although moderately volatile, it still experiences occasional spikes when traders are uncertain of market direction.
Quantitative easing, the relative size of trade balances, and economic growth also influence the USD/JPY pair. Japan’s economy is projected to grow in 2024 after narrowly avoiding recession, with wage growth and consumer spending driving growth. This will impact the USD/JPY price in the second half of 2024. The pair currently trades at 156.6, with a strong buy sentiment on the monthly chart.
GBP/USD (British Pound/US Dollar)
The pair currently trades at 1.2739 and is one of the most traded in the market. Often called “The Cable,” the GBP/USD is one of the oldest currency pairs and has continued to dominate the forex market. Britain has endured some turbulent economic periods post-Brexit and is only now reaching new growth strides. The USD has failed to attract demand following the core PCE inflation release, while the GBP gained mildly. The pair is known for its volatility, especially during market hours, and its sensitivity to economic data.
USD/CAD (US Dollar/Canadian Dollar)
Another popular pair is the USD/CAD, which currently trades at 1.3638 after reaching a 6-month high of 1.3822 on 16 April. Canada missed out on its first-quarter GDP targets, and analysts predict rate cuts to stimulate economic growth. The next rate announcement by the Bank of Canada is on June 5. Although the USD/CAD is moderately volatile, Canada’s close economic ties with the US account for its 0.16% volatility. It is not unusual to see the pair’s price move by a hundred pips in one trading day.
USD/CHF (US Dollar/Swiss Franc)
The USD/CHF pair currently trades at 0.9037, gaining 0.04% in the last 24 hours.
“The Swissie,” as it is called, is the fifth most traded currency in the forex market, and it is only the third pair, with both the base and quote being safe haven currencies. The US dollar has struggled against the Swiss Franc in the last decade but is up 7.52% and 3.18% on the YTD and 6-month chart, respectively. The CHF has hit a 2-month low and is currently moving towards the 0.90000 support level. With a volatility rating of 0.74%, the pair is moderately volatile.
AUD/USD (Australian Dollar/US Dollar)
The Australian dollar currently trades at 0.66, with price consolidating after China released the NBS Purchasing Managers Index (PMI). China’s close trading ties with Australia mean that significant changes in the former’s economy impact the latter. Experts expect the AUD to rally as investors ramp up demand, following expectations for higher interest rate announcements. The Reserve Bank of Australia is expected to maintain high rates until next year to stimulate Australia’s economy. The AUD/USD accounts for 5% of the forex market volume and can see periods of volatility due to interest rate differentials.
EUR/GBP (Euro/British Pound)
The EUR/GBP pair trades at 0.85, backed by two of the world’s biggest economies. Both the UK and the Eurozone economies have endured prolonged periods of slow growth. Experts opine that the British Brexit cut off 5% of the UK’s economic growth, resulting in a struggling GBP. Analysts predict the price will move to 0.8570 as bulls dominate the market.
How One Company Has Been Changing the Global Coffee Trade(Opens in a new browser tab)
The Best Forex Pair for Trading
The choice of a currency pair for forex trading depends on traders’ preferences. Some traders prefer highly volatile pairs like the EUR/USD and XAU/USD (Gold/USD), while others prefer moderately volatile currencies. There’s really no globally designated “best pair” for trading, so choose your pairs based on your trading plan. If you like to trade the news, then USD pairs are excellent choices.
Discussion about this post