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Top 3 Currency Pairs to Watch for Day Traders

Bader Al-Roudhan

July 23, 2024

When trading forex, it is important to understand currency pairs. Each pair consists of two different currencies that are traded in pairs because buying or selling one currency involves an automatic exchange with another. Just like when you buy a foreign currency for a trip, you are using your US dollars to buy another currency.

Source: BioForex

 

In each pair, there is a base currency (the first one shown on the left) and a quote currency (the second one on the right). The price of the pair represents how much of the quote currency is needed to buy one unit of the base currency. For example, in the EUR/USD pair, the euro is the base currency and the US dollar is the quote currency. A price of 1.1000 means that it takes 1.10 US dollars to buy one euro, or that one euro is worth 1.10 US dollars.

We chose the EUR/USD pair in the example above because it is the most widely traded pair, offers good liquidity and tight spreads. This pair is very popular due to the stability and strength of the US and Eurozone economies, making it a viable option to trade, along with other popular pairs such as USD/JPY and GBP/USD. Here’s a quick look at them.

1. EUR/USD

Our ranking of the most traded forex pairs begins with the EUR/USD pair as it is the most traded currency pair globally, reflecting the strength of the Eurozone and US economies. It represents 22.7% of the market share as of 2022, providing high liquidity and tight spreads for traders. The pair has a negative correlation with the US dollar and the Swiss franc USD/CHF and a positive correlation with the GBP/USD due to the EUR’s positive correlation with the British pound and the Swiss franc.

2. USD/JPY

The USD/JPY pair is the second most traded pair, with a market share of 13.5% as of 2022. This pair shows great sensitivity to political changes between the US and the Far East. This pair is usually positively correlated with the USD/CHF and USD/CAD pairs, as the US dollar is the base currency in these pairs. This pair responds significantly to interest rate changes decided by the Bank of Japan (BOJ) and their impact on the value of the yen against the US dollar.

3. GBP/USD

The GBP/USD pair represents 9.5% of the forex market share as of 2022, indicating the strength of the UK and US economies. The pair shows a negative correlation with the USD/CHF and a positive correlation with the EUR/USD, reflecting the positive correlation between the GBP, the CHF and the EUR.

The US dollar appears in many major currency pairs due to the strong US economy and the stability of the government that backs the currency, which is why the USD/USD pair is traded against the top three pairs selected in this article. Factors such as trading dynamics, interest rate volatility, economic uncertainty, and geopolitical conflicts, such as war, can affect certain currencies and their pairs. Therefore, it is important to stay informed about current events and developments in order to make informed choices when entering the Forex market and choosing promising currency pairs to trade.

Disclosure: The information contained in this report is for informational purposes only. The information may be sourced from third party data and financial market providers, and the CFI Group, along with its regulated subsidiaries, are not responsible in any way for any losses and/or actions taken by the investor based on this report. Therefore, any investment decision taken by the investor is based on his decision, judgment and experience or on the private advice he chooses to obtain from a financial advisor or financial advisors. We do not provide any investment advice with the aim of influencing the investor’s decision. The contents of the report are for informational purposes only and are considered as additional or investment services or advice. We provide general information and analysis that may not take into account any of your objectives, financial situation, personal circumstances or needs. Therefore, you should always consider your trading objectives and risks, and therefore you should not invest any amounts that you cannot do without. All information and data contained in this report are for the purpose of enabling you to make your own investment decisions and should not be construed as personal advice or recommendation. The content of the article reflects the opinions and beliefs of the authors and does not necessarily reflect the orientations of (CFI). The company is not responsible for any decisions or operations undertaken by the investor, as the investor has complete freedom and will to make any decision he deems appropriate for his investment.This publication is the sole property of CFI. The agreement states that the receiving party shall only display it and shall not publish, distribute, or reformat the reports received and send them to any other parties. Any individual or company that publishes or copies them will be prosecuted for copyright infringement.

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