Major Currency Pairs Explained

Would you rather watch Major League Baseball… or Little League? 

Don’t get us wrong – there are plenty of reasons to be into Little League. Maybe your kid’s on the team. Maybe you’re the coach. Maybe you’ve set up your own underground gambling ring centered around the open market of kids’ sports. ⚾ 💰 

But for most of us, the national stage and high stakes of the MLB is just going to have a little more draw. This is the main stage, the cream of the crop – and whether you’ve been an avid baseball fan your whole life or just saw Moneyball on Netflix and decided to start watching, you’ll find people who know your team anywhere you go. 

The forex market has its own version of baseball leagues. See, not all currency pairs are created equal. Some get much more attention on the international stage than others, and see many more trades day in and day out. After all, there’s a reason it’s always easy to find out how the Fed’s comments have given the Dollar a break.

Whether you choose to cash in on the major pairs or make some lower-profile trades in the smaller arena, it’s important to understand what the major currency pairs are, and the role they play in the forex market. This guide will help you understand what the major currency pairs are, what influences them, and how you can trade with them. 

What are the Major Currency Pairs? 🤔

There are tons of currency pairs in the forex market. This can make the forex trader’s job a bit complicated: constantly watching price fluctuations, watching stuff like the dollar’s best weekly gain in a month and the kiwi dealing with significant inflation.

Whether you’re just starting out in forex or you’ve set your favorite trading strategies, you have to keep an eye on market fluctuations. When you’ve been doing this long enough, you’ll notice that there are certain currency pairs that are traded the most, and seem to drive other movements in the market.

These pairs are called the major currency pairs, or the four majors. These four pairs are made up of five currencies: the U.S. dollar, the euro, the Japanese yen, the British pound, and the Swiss franc. In addition to these, there are three major commodity currencies, or currencies which are highly reliant on national imports or exports, which are highly traded against the U.S. dollar: the Australian dollar, the Canadian dollar, and the New Zealand dollar. 

The Four Majors 👓

For easy reference, we’ve put a table together of the four major currency pairs breaking down their shorthand, formal names, and nicknames. 

Major Commodity Currencies 🔍

Following is an easy reference table for the three commodity currencies traded against the U.S. dollar, along with the common nickname for each. 

So now if you hear someone asking whether they should trade the gopher or the kiwi – you’ll know what the heck they’re talking about! 

Major Currency Pairs 💱

When virus anxiety keeps the U.S. dollar up, it has repercussions for the market as a whole. The four major currency pairs tell us a lot about how the market as a whole is moving. Here, we’ll dive into the four majors in more depth, plus the three commodity currencies. 

The 4 Most Popular Forex Majors 💲

These pairs are traditionally viewed as the four major currencies. Whether you’re day trading forex or making investments for the long haul, understanding their price movements will help you become a better trader. 

EUR/USD 💶

This is the most traded currency pair in the entire world, and accounts for 20% of all forex trades. This price shows you how many dollars are required to buy a single euro. Because this is such a popular pair, it is extremely liquid. This means that spreads offered by the leading forex trading platforms are often tight, so the price difference between the bid and the offer are smaller, helping traders get closer to what they hoped or intended to pay.

This pair is also not as volatile as many other pairs. The U.S. dollar and the euro are supported by the two largest economies in the world. There is some volatility, and this can increase due to political and economic news, such as the Fed’s statement that jobs are more important than consumerism to the U.S. economy or the predicted rapid inflation in the U.S. dollar.

Liquidity and availability are the major reasons to trade EUR/USD. It is easier to make forecasts for this pair, because there is so much data due to the high volume of trades being made every hour. 

The best time to day trade this pair is 1300-1600 GMT – this is when the biggest price moves occur. Day traders can take advantage of this volatility to profit from fluctuations hourly.

USD/JPY 💵

The USD/JPY is the second-most-traded currency pair, after EUR/USD. Traders might notice that a pip on USD/JPY is much higher than for many other currencies – this is because the price of the yen is very low compared to the dollar. 

The yen is much lower than the dollar in part because of the Bank of Japan’s low-interest rates, which are put in place to incentivize growth. Because of this, the yen is often used in carry trading strategy, which is when a trader borrows money from a country with low interest rate and invests it in a country with higher interest rates. 

The yen is viewed as a stable currency, and can therefore rise during times of economic turmoil—traders have a lot of faith in the Japanese. In August 2021, risk aversion led to increases in JPY even though the interest rates were below 0% at the time.

This pair also has relatively low spreads and high volatility primarily driven by Asian markets. This volatility makes it a better fit for those who might be scalping in forex trades or using other high-turnover strategies. It is responsible for about 17% of daily forex market activity.

If you’re planning to invest in USD/JPY, know that the Bank of Japan does sometimes intervene in the market when their industries are threatened. The pair’s volatility can also be a drawback, particularly if you are leveraging your forex trades.

There are many factors that might influence this pair’s movements. These include the economies of the U.S. and Japan, and imports and exports in both countries. 

The U.S. also has a faster-growing economy than Japan, which can cause a downward trend in the yen against the dollar. Japan is also particularly prone to natural disasters due to its small size, which can impact their economy greatly. 

GBP/USD 💷

The GBP/USD is highly correlated to the EUR/USD, since the British economy is tied to that of the European Union. This is another volatile, liquid pair due to high trading volumes, so traders can expect tight spreads.

The best time for day traders to trade GBP/USD is between 0600 and 1600 GMT, which is when the largest fluctuations occur. The average movement is typically around 70-100 pips per day, though this fluctuates based on market conditions. This pair is of course influenced by the UK economy – the Bank of England’s interest rates and quantitative easings. 

USD/CHF 💰

The Swiss franc might not be what traders expect to see when researching the four major currency pairs. Switzerland doesn’t have the global economic footprint that our other currencies (the United States, the European Union, Japan, and the U.K.) have. 

Like the yen, the franc is considered a “safe” investment. This has made it very popular over the years, especially in times of economic uncertainty. Switzerland has a stable economy, and is generally a safe, neutral country, making its economy less prone to volatility. 

The franc typically follows the same trends as the euro, since Switzerland’s economy is heavily impacted by that of the European Union. One of the trends noticed in recent years is that the franc can rising against the euro when the EU regulators fear inflation.

Switzerland has strict banking policies, which can impact price movements as much as economic factors such as inflation rates, industrial production, consumption, and job numbers. The best time to trade the Swiss franc is from 0600 to 0900 GMT, and 1230 and 1400 GMT. This is when the price has the greatest fluctuation. 

The 3 Major Commodity Currencies 💳

There are also three major commodity currencies (currencies whose price is largely determined by their major imports or exports) that are traded against the U.S. dollar. 

AUD/USD 💸

The Australian dollar is highly dependent on coal, iron, and other metals including copper. It also correlates to beef, wool, and wheat thanks to its ample farmland. Before you trade this pair, check those prices – they’re a good indicator of the value of the Australian dollar. 

When the U.S. dollar is strong, that also affects the Australian economy. A strong USD often means cheaper Australian exports, which can reduce the Australian dollar’s value. 

The Australian dollar also correlates to the Chinese economy, as much of their trading is with China. Political shifts in China can impact the AUD/USD. The busiest time (and thus the time with the most price fluctuations) to trade AUD/USD is from 1900 to 0430 GMT.

USD/CAD 🇺🇸

Canada’s primary export is oil. This means that the price of oil largely dictates the value of the Canadian dollar. Oil price changes can happen due to production quotas, taxes and regulations, and many other factors, which can then affect this currency pair. 

In general, when the price of oil goes down, the U.S. dollar strengthens, as the U.S. is a primary consumer of oil. The Canadian dollar would simultaneously decrease.

This can account for much volatility in this pair. The Canadian dollar is also impacted by the prices of timber and natural gas. 

The best time for day traders to trade USD/CAD is from 1200 and 1700 GMT. This is when the price has the most fluctuations for day traders to capitalize on.

NZD/USD 🇳🇿

The New Zealand dollar is highly tied to agriculture, international trade, and tourism. Soft commodities, therefore, have a major impact on NZD/USD. 

New Zealand’s currency is highly impacted by interest rates set by the Reserve Bank of New Zealand. This is especially true when these rates don’t complement regulations set by the Fed in the United States. 

There are several times throughout the day when NZD/USD experiences high volatility. These times are from midnight to 0200 GMT, 0600 to 0800 GMT, and 1200 to 1700 GMT. 

Limitations of Major Currency Pairs ⚠️

So, we know why people choose to trade the majors. Part of it is our old baseball analogy – people are naturally attracted to what’s popular. In the case of forex, there’s the additional factor that higher volume trades mean more availability, which in turn means better spreads. Traders can enter and exit the market basically as quickly as they want to.

But of course, the majors don’t account for one hundred percent of trading in the forex market! There are plenty of currency pairs that experienced traders choose to deal in. Why not trade the majors? 

Perhaps you want to chart your own path through the forex market. Perhaps you want to diversify and have investments in economies that are less tied to each other. Perhaps you are deeply knowledgeable about political and economic dealings in other countries, and you want to put that knowledge to use. 

Trading the majors can be great for beginners thanks to the wealth of information, tight spreads, and liquid markets. But they are certainly not the only option for forex traders. Just make sure you understand these pairs and how they influence the market as a whole, and then you can decide whether they are the best fit for you. 

What Influences Major Forex Pair Prices? 📊

We’ve seen an upswing in investing in forex recently – it’s easy to get started, the markets are highly liquid, and there are plenty of ways to learn. Regardless of where you are in your forex journey (not to get too mushy on you), research is a huge part of making smarter trades.

But what exactly should you be researching? What are the factors that influence the majors? Let’s break down the various events and shifts that can cause a currency pair to move.

Interest Rates 📈

When you’re dealing with currencies, you’re dealing with countries, which means you’re dealing with central and national banks. The goal of these institutions is to promote economic growth and financial stability in their home countries. 

Banks do this by shifting interest rates. A new interest rate can have a significant impact on a currency: when the interest rate increases, demand for the currency increases, as investors want to see higher yields. 

This makes the currency more valuable compared to other currencies. Conversely, when the interest rate lowers, demand for the currency may lower. 

Economic Releases 📉

Nations will release economic reports periodically that show how their economy is doing. Reading these reports can give traders insight into the nation’s economy – and there is often a flurry of activity following each report. You’ll want to understand inflation data, employment data, production data (such as gross domestic product), and other metrics.

Global Politics 🌐

Major political events naturally impact the economies of many nations. Election coming up? That will affect the economy. New trade regulations? A war or terrorist attack? All of these impact buying and spending, and thus the economies of nations as a whole. 

Stay informed of political goings-on in the countries where your currencies are based. The economies of some nations are also tied with other nations that they have particularly strong political, geographic, or trading connections with. 

Commodities 📦

As mentioned above, many currencies are deeply linked to the commodities of their nations. As the value of their major exports shift, their workers may have more or less cash in their pockets to go out and spend. Their economies and their currencies may therefore shift in accordance with the commodity price.

Major Currency Pair Price Change: Example

So now we understand what impacts currency pairs. But how can we see this in the real world? Let’s look at a recent example, and see how exactly a currency pair.

Remember back in March 2021 when a ship blocked the Suez Canal? (Man, what a weird year.) This caused major trading problems that echoed across the entire globe. There was great uncertainty about when commodities would arrive, and uncertainty is always damaging to trading and investment. 

So based on what we know about price fluctuations of currency pairs, what do you think happened to EUR/USD, which represents the two largest economies in the world? If your guess is that it took a massive nosedive – you’re absolutely right! 

You can easily pinpoint the blockage when the blue line takes a downward turn. But of course, that’s not the end of the story – the boat got shimmied right out of that canal, and our girl EUR/USD popped right back up, good as new. Once everyone had faith that trading would recover and we weren’t facing a global emergency anymore, the economies rallied and the currency pair returned to its previous standing. 

Predictions are easy to make in hindsight – but that’s not going to stop us. If you had seen that the boat got stuck and took a short position out on EUR/USD, then held off until right before they freed it, you would be sitting pretty on a pile of cash right now. Alternately, you might have had faith that the blockage was only a temporary issue, and opened a long position as the pair hit the floor. 

Conclusion 🏁

Now, you are basically an expert on trading the major forex currencies! Make sure to use appropriate leverage that won’t knock out your capital with minor price fluctuations, and set your strategy and stick to it. Even if you’re not a beginning trader, trading the majors can be a consistent, lucrative form of day trading or long-term investing. 

The major currency pairs still require just as much research as any other currency pair. Once you’ve set your investments, you’ll know what political and economic news to follow so you can tend to your potential profits. Jot down the best trading time frames, stay up to date and news and forecasts, and soon you’ll be raking in the dough!

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