28 major currency pairs represent a system that includes a combination of eight currencies. 21 of these pairs represent exotic pairs that do not include the USD either on the left or right side of the pair. These are the EUR/JPY or AUD/CAD,. The most-traded exotic pairs are the EUR/JPY and EUR/GBP.
7 other pairs are major ones and with the largest trading volume.
Be aware of the difference between major currencies and pairs. Traders on the Forex market inevitably come across currencies called “the major currencies”.
This term indicates the most frequently traded currencies worldwide, and the list includes Euro (EUR), Dollar (USD), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD) typically), and the Swiss franc (CHF).
The nicknames of 7 major currencies
It is also essential to know the abbreviations and a nickname for each currency. These names are easy to use for research and are convenient when communicating with other Forex traders.
USD (United States Dollar Dollar) – Greenback or Buck, safe haven currency.
The first nickname comes from the banknotes issued during the American Civil War in 1861, characterized by the color green on their backs. On the contrary, the origin of the nickname “Buck” is less obvious.
It’s probably an abbreviation of the term “buckskin”, meaning chamois. Native Americans used this bargaining unit as a bargaining chip with Europeans during the border days (word attested since 1748).
- GBP (Pound Sterling) – Sterling. The pound sterling is officially called the “pound sterling”. Sometimes we just use “pound” or “sterling”. In particular, the name “sterling” comes from when the pound sterling had a value equal to one pound of sterling silver.
- EUR (Euro) – Single currency or Fiber. The nickname “single currency” comes from the fact that it is used in several states. The term “fiber” comes from the fact that this currency bill is made of pure cotton fibers.
- CHF (Swiss Franc) – Swissy. Nickname for the Swiss franc, but also for the currency pair USD/CHF.
- CAD (Canadian Dollar) – Loonie. A nickname that comes from the fact that the currency of one Canadian dollar has the image of a common loon, a bird widespread in Canada.
- AUD (Australian Dollar) – Aussie or Ozzie. This nickname originates from the fact that the term “Aussie” refers to an Australian. In particular, even the AUD/USD currency pair is nicknamed this way.
NZD (New Zealand Dollar) – Kiwi. This nickname comes from the national symbol of New Zealand, namely the “kiwi”, a kind of bird.
The US dollar is not in any cross currency pair. Previously, currencies had to be exchanged for US dollars before they could be exchanged for other currencies. The most popular cross pairs are EUR/GBP, EUR/JPY, and EUR/CHF.
This crossed pair EUR/GBP assesses the relationship between the UK economy and that of the European Union. Forecasting for the EUR/GBP pair can prove difficult due to the close connection between the two economies.
Commodity-related currency pairs
Commodity-linked currencies, such as the Australian dollar, Canadian dollar, and New Zealand dollar, form major currency pairs heavily influenced by commodity prices.
The price of the AUD/USD (Australian dollar / US dollar) pair, is strongly influenced by mining products, cattle breeding, wool, and wheat.
On the other hand, the Australian dollar tends to do well when China’s economy is doing well due to the importance of trade between the two countries. The Central Bank of Australia (RBA) also exerts a major influence on the AUD/USD pair.
Factors that influence the price of 28 major currency pairs
The evolution of overnight interest rates by central banks, economic data, and politics are the main factors that are impacting the prices of 28 major currency pairs.
Volatility – As a general rule, traders open lower positions in more volatile currencies and higher positions in less volatile currencies. Volatility can impact any of these major currency pairs any time due to sudden economic changes and changes in interest rates, or political instability. It is important to follow these markets to keep abreast of the latest news and analysis.
Interest rates – central banks are responsible for preserving monetary and financial stability. To do this, they use their interest rates. Suppose a central bank raises its overnight interest rate. In that case, demand for its country’s currency increases as investors and traders crave that higher yield, which, in turn, strengthens that currency by comparison to others.
Economic Data – Economic data releases are reports that provide traders with insight into a nation’s economic landscape. Inflation, gross domestic product (GDP), retail sales, and the purchasing managers’ index (PMI), etc. are among the most important economic data.
Politics – Trade wars, corruption scandals, elections, and various policies cause instability, reflected in the foreign exchange market. The government can affect the economy, which can have a favorable or unfavorable effect on the relative value.
The most traded currency pairs in Forex
Here is the list of most traded pairs in Forex trading.
The Euro/US Dollar is the most traded currency pair. Almost a quarter of all currency transactions take place in this pair. The Euro is the youngest currency among the major pairs. Significant incentive measures have led to a sharp decline in the euro against the dollar in recent years. The temporary low was formed in early 2017 and is around 1.034. In October 2000, the euro even plunged to a level of 0.823 dollars.
In second position, we find the USD/JPY with no less than 18% of total exchanges on the currency market. For equity markets, this is the important currency pair to keep an eye on. The Japanese yen is often seen as a safe haven in times of uncertainty. A rising yen often means falling stock markets.
In third place is the British Pound/US Dollar currency pair. It accounts for 9% of all currency transactions. The GBP/USD pair is often referred to as “cable” by traders. This name refers to the time when a telegram (cable) was used to transmit currency quotes between London and New York.
In fourth position, we find the Aussie, with 6.8% volume share. Aussie stands for the AUD/USD pair. This pair is strongly linked to the evolution of commodity prices since many mining companies are located in Australia. Note that Australia is the second largest producer of gold in the world.
The “Loonie” pair completes the top 5. This is the US dollar/Canadian dollar pair. The US dollar remains involved in 87% (out of 200%) of pair trades. This 200% is explained by the fact that a currency pair is composed of two components.
You will notice that the top 6 consists of pairs all tied to the US dollar. The US dollar is involved in 87% (out of 200%) of pair trades. This 200% is explained by the fact that a currency pair is composed of two components.
The “Swissy” pair, the US dollar against the Swiss franc represents about 3% of the total volume. After the dollar, the Swiss franc is the currency that obtained the best results in 2015, against the dollar, the franc lost only 0.13% of its value.
The euro/Japanese yen pair is the first pair without the US dollar among the top 10. This currency pair corresponds to 3% of the total volume of the currency market. Following strong incentives from the European Central Bank and the Bank of Japan, this currency pair is currently highly dependent on the influences exerted by both central banks.
In eighth place, we find the euro/pound pair with a volume of 2%. The pound has been in the news lately because of the UK’s withdrawal from the European Union. At the moment, the pound sterling is under high pressure in view of Brexit.
The Euro/Swiss Franc pair had a busy year, with movement never seen before in the major currency pairs. In 2011, the Swiss National Bank decided to introduce a minimum exchange rate of CHF 1.20 to limit a sharp rise in the currency. However, the price did not cease to approach this cap of 1.20 CHF and on January 15, 2015, the Swiss National Bank decided to no longer continue to cap this price. The EUR/CHF price fell in a few minutes below 0.80, which corresponds to a drop of 30%.
With a volume of 1%, the New Zealand dollar/US dollar currency pair completes the top 10.
28 Major Currency Pairs – In Conclusion
With a turnover of more than 5 trillion dollars per day (including derivatives), the foreign exchange market is among the largest markets in the world with high liquidity. You can benefit from Forex market opportunities if you pick the right trading pairs. Fore beginner and intermediate traders are absolutely recommended to start with some of the 28 major currency pairs.