What are the Forex Major Pairs:

All currencies can be compared as a forex pair but the most traded currency pairs are known as the forex major pairs. The top seven currencies most commonly traded include the British pound, the euro, the US dollar, the Japanese yen, the Australian dollar, Canadian dollar and the Swiss franc. These make up the highest volume of trades in the foreign exchange market and are therefore considered to have “market liquidity” meaning they can be sold quickly without great fluctuation in price. Some of the major pairs are given nicknames when paired with the US dollar such as “swissy” (Swiss franc), “loonie” (Canadian dollar), “Aussie” (Australian dollar) and “Kiwi” (NZ dollar).

The Euro dollar is the comparison of the value of the euro against the US dollar. It had the highest turnover in 2016, making up 23% of the daily average trading volume, according to the Bank for International Settlements. The dollar yen was the second most traded major pair at 17.7% although turnover in 2016 was markedly lower than in 2013 when the Euro dollar achieved 24.1% and the dollar yen 18.3%. One of the least traded of the major pairs was the “kiwi” making up only 1.5% of the daily trading volume.

Currency Pair Countries FX Nickname
EUR/USD Euro zone / United States “euro dollar”
USD/JPY United States / Japan “dollar yen”
GBP/USD United Kingdom / United States “pound dollar”
USD/CHF United States/ Switzerland “dollar swissy”
USD/CAD United States / Canada “dollar loonie”
AUD/USD Australia / United States “aussie dollar”
NZD/USD New Zealand / United States “kiwi dollar”

The popular currency pairs that do not include the USD are referred to as the cross currency pairs, for example the GBP/EUR currency pair.

The Euro dollar is the comparison of the value of the euro against the US dollar. It had the highest turnover in 2016 with a daily average turnover of over $1.173 trillion, making up 23% of the forex market. The dollar yen was the second most traded major pair accounting with a daily average turn over of $901 billion accounting for 17.7% of the daily trading volume. One of the least traded of the major pairs was the “kiwi dollar” with a daily average trading volume of 77.6 billion accounting for less than 1.6% of the forex market.

Advantages to trading the Major Pairs

Slippage – These make up the highest volume of trades in the foreign exchange market and are therefore considered to have “market liquidity” meaning they can be sold quickly without great fluctuation in price.
Volatility – The majors are based on the major economic superpowers like the US and Europe and are not as volatile as trading exotic pairs with less stable economies like Zimbabwe (ZWD).
Tighter spreads – They have more trading volume and are generally offered lower spreads than other currencies for example with a Forex broker like AvaTrade, the minimum spread for the EUR/USD is 0.1 compared to 1.9 for a cross currency pair like EUR/JPY.

What Are Forex Pairs?

A forex pair is the comparison of the value of one currency against another. For example, the euro against the British pound or the US dollar against the Japanese yen. These values are ever fluctuating leading to the popularity of currency as a tradable commodity. The value is written as a pair divided by a slash with the first currency called the base currency and the second the counter currency.

Forex Major Pairs

All currencies can be compared as a forex pair but the most traded currency pairs are known as the forex major pairs. These are the top seven currencies most commonly traded and include the British pound, the euro, the US dollar, the Japanese yen, the Australian dollar, Canadian dollar and the Swiss franc. These make up the highest volume of trades in the foreign exchange market and are therefore considered to have “market liquidity” meaning they can be sold quickly without great fluctuation in price. Some of the major pairs are given nicknames when paired with the US dollar such as “swissy” (Swiss franc), “loonie” (Canadian dollar), “Aussie” (Australian dollar) and “Kiwi” (NZ dollar).

The Euro dollar is the comparison of the value of the euro against the US dollar. It had the highest turnover in 2016 by far with a daily average of 23%, according to the Bank for International Settlements (www.bis.org/publ/rpfx16fx.pdf ). The dollar yen was the second most traded major pair at 17.7% although turnover in 2016 was markedly lower than in 2013 when the Euro dollar achieved 24.1% and the dollar yen 18.3%. One of the least traded of the major pairs was the “kiwi” at only 1.5%.

Fundamental Influences

As a global marketplace, foreign exchange is fundamentally influenced by social and political events across the globe and in turn forex itself wields a powerful influence over economic trends and political stability. Forex analysts take into account a variety of economic and political factors for both currencies on a regular basis and then attempt to forecast the overall directional outlook of a particular pair.

If the forecast of a particular pair changes suddenly due to an unexpected political or economic event, then the market may become more volatile as the exchange rate for the currency pair quickly rises or falls.

Information fundamental analysts use to forecast future exchange rates include changes in a country’s gross domestic product (GDP), interest rates, inflation, a country’s trading patterns and general economy based on whether or not their politics are stable and peaceful.

Employment data, retail sales trends, industrial production and the Consumer Price Index also have a powerful influence on the overall value of a country’s currency.

Volatility can arise following a political or economic announcement but can be short-lived as the market settles back to the original trend soon after. If a forex major is considered stable, or liquid, it can be viewed as a less risky pair compared to a naturally volatile currency pair.

Three Factors That Influenced the Majors in 2016

1. China’s Economic Slowdown

As the world’s largest economy, accounting for up to 18% of world economic activity in 2016, any changes in China affect currencies across the globe. In 2016, China’s economy grew by6.7% marking its slowest growth since 1990. As China is the world’s second largest importer of commercial services and goods, the slowdown had a significant impact on the rest of the world, affecting forex prices and commodities like oil.

2. Brexit

June 2016’s shock Brexit outcome predicted economic calamity particularly for the value of the British pound. The value of the pound weakened sharply immediately following the vote to leave and further influences have driven it even lower. Sterling plunged 19% after the referendum reaching a low of $1.21 in October.

3. Falling Oil Prices

Oil prices continued to fall as in the previous year. As a result, the Canadian Loonie took a heavy hit and reached an eight month low of 74.07 US cents in November.

Three Events That Might Impact Currency in 2017

1. Trump

Donald Trump’s shock presidential election in the latter part of 2016 left forecast analysers struggling to predict how Trump’s policies of tariffs and border taxes would affect the dollar. Already strengthened by political instability in Europe, the dollar continues to appreciate. Other currencies affected include the Canadian Loonie and the Japanese yen as countries with bigger imports to the US may suffer Trump’s expensive border taxes.

2. Brexit

The Bank of England base rate was cut in August and is expected to remain at 0.25% for most of 2017 which keeps the pound low in relation to other currencies especially the US dollar. Sterling is expected to remain in the $1.15-$1.30 range.

3. Slow growth in New Zealand

While weak elsewhere, the pound looks to improve against the NZ dollar due to a fall in New Zealand’s GDP. The NZ dollar fell to 69.73 US cents in March 2017.

How to Trade Forex Major Pairs

For many traders with smaller deposits, trading using a CFD account is a popular method. Retail traders can access a wide range of markets with a CFD broker. Furthermore, using leverage, traders only require a fraction of the total value of the contract. For example, by trading with a broker such as LCG the minimum bet could be as low as £0.50 on the Euro/GBP with a spread margin from 0.9-1.5. However, it is always important to remember that alothough the gains are potentially magnified but so too are the losses.

If you are looking for a CFD broker, it is important to ensure they are regulated by a reputable organisation like the Financial Conduct Authority in the UK, you can view a list of brokers regulated by the FCA here: Top Forex Brokers Regulated by the FCA (UK).

Similarly, traders with higher deposits can also take advantage of opening an account with a broker like LCG which offer ECN accounts with tighter spreads that require a minimum of £10,000 to open.

*All information collected from www.avatrade.com, see website for full terms and conditions. Your capital is at risk. Last updated on March 6th, 2017.