Currencies are traded in pairs on the forex market. By buying a pair, you’re effectively buying the first currency on the pair, called a base currency, and selling the second, called the quote currency. To that end, there are three types of pairs, namely major, minor pairs, and crosses. Major pairs include the USD and another major economy’s currency, while minors exclude the USD but include one of the world’s largest economies’ currencies. Crosses are any pair that does not involve the USD.
Best pairs to trade come 2022
This is currently the most traded pair in the world. According to the Bank of International Statistics (BIS), it accounts for 24% of all daily forex trades. This is because both currencies represent the world’s largest economies – the European bloc and the United States.
This pair enjoys high liquidity and, consequently, tight spreads, which are very attractive to traders. The main factors moving the pair’s price are the monetary policy decisions by both the US’s Fed and the EU’s ECB. When it comes to interest rates, the currency with the higher rate tends to rise against its partner.
Informally dubbed the gopher, this pair involves the US dollar and the Japanese yen. Much like the EURUSD, the gopher enjoys high liquidity. This can be attributed to the fact that it represents the largest economy worldwide (the US) and the most traded currency in Asia, the Japanese yen. The main factor affecting its price is the interest rate decisions by the Fed and the Bank of Japan.
This pair is nicknamed the cable, owing to the communication cable that ran below the Atlantic between the US and the UK. This cable was used to transfer live forex market prices between the two countries. It is a well-performing pair, mainly due to the strength of both countries’ economies. If the UK economy grows faster than the American, the GBP strengthens against the dollar. If the American economy thrives while the British one struggles, the dollar strengthens against the pound. The pair is also affected by the interest rate differential between the two countries. Interest rate decisions are mandated to the Fed in the US and the Bank of England in the UK.
This pair is nicknamed the Aussie for obvious reasons. The Australian dollar is classified as a commodity currency since its value rides heavily on the value of Australian exports. A big bulk of the country’s exports includes metals and minerals, which contribute heavily to Australia’s GDP. Therefore, if the global prices of these commodities fall, the AUD suffers the same fate while the USD strengthens.
Like other pairs, the AUDUSD is also affected by interest rate decisions made by the Fed and the Reserve Bank of Australia (RBA). Whichever of the two banks has the higher interest rate causes their currency to rise in value.
This pair is cleverly nicknamed the loonie, after the loon bird, which is inscribed on Canadian coins. The Canadian dollar is another commodity currency, as its value depends heavily on global oil prices. This is because oil is Canada’s primary export. On the global marketplace, oil is priced in USD. When oil prices rally, the Canadian dollar strengthens as Canada rakes in plenty of USD from its exports. Typically, the value of USD falls as oil prices rise. Therefore, if you’re looking to trade this pair, you should keep a close watch on the prices of both Brent and US crude oils.
This pair details the relationship between the greenback and China’s Renminbi commonly called the yuan. In recent years, the yuan has been slowly depreciating because of the trade war between China and the US. The Chinese government intentionally devalues the CNY to make their exports cheaper and affordable to more countries around the world. CNY is the name given to the yuan that is traded inside China, while CNH refers to yuan traded offshore. CNH is not as closely controlled by the Chinese government as the CNY, which makes it more suitable for trading.
Also called the Swissie, this pair involves the US dollar and the Swiss franc. Other than the US’s economic superiority, this pair is popular because of Switzerland’s status as a center for banking and finance. Both currencies are regarded as safe havens, which makes the pair preferable to traders during periods of increased market volatility. During times of economic turmoil, most investors will channel their funds to Swiss banks, which raises the value of CHF.
This pair is made up of the US dollar and the Hong Kong dollar. The HKD is pegged to the US but is allowed to fluctuate between 7.75 to 7.85 HKD to one USD. The Hong Kong protests of 2019 brought with them a lot of media attention to the situation in the city, which in turn drove investors their way. Therefore, investors closely monitor reports of any turmoil in the city as it often affects the HKD’s value.
This pair is one of the most difficult pairs to predict, owing largely to the close economic ties between the UK and Europe. There are strong trade ties between the two regions, and any announcements by the BoE and the ECB often cause fluctuations on the EURGBP price chart. The pair has been fluctuating unpredictably in recent years, owing largely to the Brexit issue. With this volatility comes increased profit potential, as well as increased risk.
This pair pits the US dollar against the South Korean won. The South Korean economy has seen significant growth since the 1953 Korean war, making it a key player in the Asian continent alongside Japan, China, and Hong Kong. This growth has earned the nickname “the Miracle on the Han River.” With this impressive growth, this pair should definitely be on your watchlist in 2022.
Other than the most popular majors, there are several other currencies that offer high liquidity and volatility, which can translate to substantial profits if taken advantage of. However, before choosing a pair, do your due diligence and perform extensive fundamental and technical analysis. In the forex market, it always pays to be informed.