by Introduction
The trends of the forex market keep changing. It is more trending than the stock market because the equity market depends upon the microeconomics dynamics but the forex market depends upon the macroeconomics which takes years to change. Some major currencies play an important role in the market and those which you need to keep in mind. There are 5 major currencies on cryptotradecorp that play a role in the forex market. They are:
- USD/JPY (US dollar/ Japanese Yen)
- GBP/USD (British Pound/ US Dollar)
- EUR/USD (Euro/US Dollar)
- USD/CHF (US Dollar/Swiss Franc)
- EUR/GBP (Euro/British Pound)
The largest and the most liquid pair out of these is the EUR/USD.
Major Currency Pairs
The US, European Union, and Japan have vast economies and that is why their currency rates and their pairings in the market are one of the major ones. But you must be wondering why Pound is there on the list. This is because of tradition. The UK was the first in the world to develop a capital market so the primacy of London, Pound is considered to be one of the major currencies in the world. The major pair in this market is EUR/USD. These two currencies form the largest economies of the world.
USD/JPY
This pair is known as ‘The Gopher’. This is a very popular pair because of the primacy of JPY in Asia and USD all around the world. It has high liquidity. This means that this pair allows the traders to buy and sell the pairs in a large volume without the price being fluctuated in the exchange rate. The overall cost of the trade is low because the pair has one of the tightest spreads in the forex market. The margin rate of this pair is 3.3%.
EUR/USD
This pair is known as ‘The Fiber’. The pair comprises the two most reputable economies in the world which makes it one of the most traded in the world. If a person seeks for pairs that can earn profits in smaller terms and frequent earnings, then this is the one he must trade-in. This currency has high liquidity and so it allows one to place large volumes of trade on this pair.
GBP/USD
This combination is known as ‘the Cable’. There is a lot of fluctuation in the price range of this pair and this makes it volatile. The volatility of this pair can either result in great profits or losses. This pair is for those traders who know how to take advantage of the price fluctuations in the market. This pair is also for short-term trading purposes.
EUR/GBP
This combination is known as ‘The Chunnel’ and is a very strong currency pair in the market. The margin rate of this pair is also 3.3%
USD/CHF
This combination is called ‘the Swissie’. It comprises the US dollar and Swiss Franc. The Swiss Franc in this pair has made it a safe place to invest for many years. When the economic or political condition is uncertain, then this pair becomes popular among the traders. This is one of the most stable pairs in the market and trading in it is very beneficial for the person. But when the condition of the market becomes stable, this pair does not attract much of the traders like the others present on the top of the list.
Observing significance of the Long Term
To measure the strength of a trend the three-simple-moving-average (SMA) filter is a very good way. The main feature of this filter is that if all the short-term, intermediate-term and long-term trends are aligned in one direction, then it makes the trend strong. The importance of this filter lies in the interplay of the three price trends that are provided by the SMAs. Valuable analysis is provided by this filter as long as reasonable proxies are used for each of the trends. The people trading in this market criticized a famous investor named Warren Buffett because he held onto his EUR/USD position because of which he suffered losses, but when you look at the trends, the future perspectives define his risk-taking.
Commodity Block Currency
USD/CAD, AUD/USD and NZD/USD are the three most liquid commodity block currencies in the forex market. These nations are the largest exporters of commodities and their primary export product has a lot of demand all around the world. ‘Loonie’ is the name assigned to the Canadian Dollar, ‘Aussie’ to the Australian dollar and New Zealand Dollar is named ‘Kiwi’. This is so because the largest exporter of Oil to the US is Canada and 10% of the country’s GDP is because of this export. This pair of currency trades inversely and a downward trend is created in the pair because of the strength of the Canadian Dollar.
Australia does not comprise oil reserves but when it comes to gold, the country stands at the position of the second-largest exporter of this metal in the world. There are great sources of precious metals in the country.
Crosses are Best for Range
Currency crosses are the one which shows the best range-bound trades of the market. Crosses in the markets are the ones that do not have the US dollar in their pairings. One example of such a cross is EUR/CHF. It is one of the best in the market. This is so because of the difference in the growth rates of the currencies as they run on fiscally conservative policies.
To determine the trends, you can determine the parameters of the range by a median line. If the pair is below the line then you must buy it and if it is above the line then you can sell it. The price fluctuation and the highs and lows of the currencies define the parameters of this range. These cross currencies are attractive in the market because they are the currencies of countries that are similar to each other culturally and economically. When we talk about the Crosses, you must know that the range traders are the ones who do not believe in direction. They believe in the condition of selling that is overbought and buying the one that is oversold.
Such cases cannot be seen in similar stocks. Stocks are influenced due to microeconomics and therefore the stocks of an individual company are more prone to risks than the currency of a country. Currencies are the ones that take into effect the dynamics of macroeconomics and that is the reason why they are safer to trade. But a trader must keep in mind that risk is there in every speculation so he should never trade the range without a stop loss.
Interest Rates
Interest rates are the major reason that causes differences among the pairs. The trading range between 2 currency pairs is majorly affected by the interest rates. The volatility of the pair depends upon the rate of interest. Larger the interest rate, the more volatile the pair is. The pairs that have a wider interest rate are mostly traded in a larger range. The forex market is the one that is flexible for both the traders following either the trend or the range of the pairs. If you do not consider the interest rates then it could lead your profitable range into a loss. You must have proper knowledge of the market to succeed in any enterprise.
