Understanding Currency Pairs

The first and very important lesson in currency trading is Fundamental Analysis.

Fundamental analysis is useful in understanding the factors that affect a currency pair. It is important not only to perform technical analysis based on your charts and indicators, but to also be aware of the macroeconomic events that can affect a currency pair. My initial study of the attributes of currencies has helped my forex trade business a lot. It is very important that you know the characteristics of the currency pair you want to trade. 

The Euro is used in the general euro-zone and it is a relative new entrant to forex trade. The EURO/USD currency is the most traded in the currency market. That is why there is a large pool of EURO/USD. The euro is greatly affected by interest rates. If you are trading the EURO/USD pair, you must pay attention to the Euribor (Europe's three-month interest rate).When trading the EURO\USD pair, always watch out for changes in investors’ reaction. This currency pair holds a lot of promise for currency trades. 

Japan- Japanese Yen. The entire region of East-Asia use the Japanese yen as their alternate currency. The value of the yen is affected by political developments in the surrounding countries. The Bank of Japan is known for intervening in the forex market to defend the yen's value. The strength of the banking sector also affects the value of the yen. 

Traders in the United Kingdom, use the British Pound Sterling .This currency is important to watch because the U.K. is one of the largest economies in the world. Energy and oil prices always affect the value of the Pound Sterling. The value of the Pound Sterling increases with rises in energy and oil prices.  

The Swiss use the Swiss Franc. The Swiss Franc is known as an investor’s safe haven in times of crisis and uncertainty. The factors that affect the Swiss Franc are bank mergers and/or poor earnings by banks. 

‘The Commodity currencies’ as they are called refer to the Canadian, Australian, and New Zealand dollars. Due to the fact that commodities consist most of Canada’s exports, the value of its currency will either strengthen or weaken, based on the prices of the commodities. Since most of Canada’s exports are shipped through the US, their currencies usually follow the same trend. 

New Zealand- New Zealand Dollar. Like the Canadian dollar, it is linked to commodity prices. It is also closely related to the Australian dollar, meaning they can act as alternatives for each other.