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These currency pairs are so significant in the financial world that mastering them is a foundational step for any forex trader.
Think of major currency pairs as the celebrity stars of the forex world: everyone knows about them and everyone talks about them. Indeed, there is a wealth of documented information out there when it comes to forex majors and how they are faring. These stars are well-known, widely followed, and always in the spotlight, attracting attention and interest from traders and investors globally.
If you are new to the world of trading, you might be wondering what they are and what all the hype is around them. If so, don’t worry—we have you covered. This article will be your guide to major currency pairs, explaining what they are, why they are so important in the financial world, and how you can trade them.
Jump to a Section
- What Are Major Currency Pairs?
- Characteristics of Major Currency Pairs
- Major Currency Pairs List
- The Traditional Majors
- The Commodity Majors
- Cross Currencies
- What Affects the Prices of Major Currency Pairs?
- How to Trade Major Currency Pairs
- Final Thoughts
What Are Major Currency Pairs?
Major currency pairs are the most traded currency pairs in the forex market, involving the currencies of the world’s biggest and most stable economies.
These pairs include currencies such as the US dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Australian dollar (AUD), Canadian dollar (CAD), and New Zealand dollar (NZD).
Characteristics of Major Currency Pairs
Major currency pairs are always composed of the US dollar (USD) paired with another major currency.
What makes them so important is the fact that they have significant trading volumes. Or perhaps they have significant trading volumes because they are so important. Whichever way the vicious cycle flows, the fact that they are so liquid means they can be traded with tighter spreads. This makes them more cost-effective to trade.
As mentioned earlier, they represent stable and developed economies which means their price movements are more predictable compared to other currency pairs. This makes them less volatile.
Their low volatility and low trading costs make them quite popular among traders. They are especially ideal for risk-averse traders and beginners who are generally advised to trade lower-risk assets.
Major Currency Pairs List
Opinions on what constitutes the major currency pairs vary. According to some, there are 7 major pairs; according to others, there are more. Some accept only four currency pairs as majors.
The list of the 7 forex majors includes 4 traditional pairs and 3 commodity pairs.
The Traditional Majors
The currency pairs that make it to everyone’s list of majors are the traditional majors. This group includes EURUSD, USDJPY, GBPUSD, and USDCHF.
EURUSD (Euro and US dollar)
Nicknamed the ‘Fibre,’ this is the most traded currency pair in the world. It shows how many US dollars you need to buy 1 euro. In other words, if we say that the rate of EURUSD is 1.20, this means 1.20 US dollars are needed to purchase 1 euro.
This pair represents two of the biggest economies in the world: the Eurozone and the United States.
Factors affecting EURUSD include:
- Interest rate differentials between the European Central Bank (ECB) and the Federal Reserve (Fed)
- Economic indicators such as GDP and unemployment rates from both regions
USDJPY (US dollar and Japanese yen)
Known as the ‘Ninja,’ this pair shows how many Japanese yen you need to purchase 1 US dollar.
In USDJPY, a single pip is often quoted to 2 decimal places. Traders usually consider the yen as a safe and stable currency in times of economic uncertainty. This is because it has a high liquidity and is generally backed by a stable government.
Factors influencing USDJPY include:
- Interest rates
- Economic uncertainty which can see the value of the yen increase
- Political stability in Japan and the US
- The policies of the Bank of Japan and the Fed
GBPUSD (British pound and US dollar)
This pair shows how many US dollars you need to buy 1 British pound.
Its nickname, the ‘Cable,’ comes from the undersea cables which were once used to send price information between London and New York.
GBPUSD is highly correlated with EURUSD due to the close economic ties between the UK and the Eurozone. It sees the highest liquidity between 12:00 GMT and 16:00 GMT, when the London and New York trading sessions overlap. This is usually the best time to trade it.
Factors affecting GBPUSD include:
- Interest rates set by the Bank of England (BoE) and the Fed
- Brexit-related and other political developments
- Economic data from both countries
USDCHF (US dollar and Swiss franc)
Nicknamed the ‘Swissy,’ it shows how many Swiss francs you need to pay for 1 US dollar.
The Swiss franc is seen as a safe-haven currency much like the Japanese yen because of Switzerland’s reputation as a politically neutral and financially stable country. In fact, many people invest in it in times of economic uncertainty.
Similar to the British pound, the price movements of the Swiss franc are closely related to those of the euro because of Switzerland’s strong economic ties with the European Union.
Factors affecting USDCHF include:
- Economic indicators from Switzerland and the US
- Policies of the Swiss National Bank (SNB) and the Fed
- Global risk sentiment
The Commodity Majors
Commodity currencies come from countries with economies that rely heavily on commodity exports. To trade them, you need a good understanding of global economic trends and commodity market dynamics. The 3 commodity majors are AUDUSD, USDCAD, and NZDUSD.
AUDUSD (Australian dollar and US dollar)
Also known as the ‘Aussie,’ it shows how many US dollars you need to buy 1 Australian dollar.
Australia’s economy benefits from exporting valuable commodities like gold and coal, especially to Asian markets. It also tends to do well when the Chinese economy does well as the two countries have strong trading relations.
Factors that influence AUDUSD include:
- Gold and coal prices
- Policies of the Reserve Bank of Australia (RBA) and the Fed
- Chinese economic data
- Broader risk sentiment as commodity-linked are also risk-linked currencies
USDCAD (US dollar and Canadian dollar)
Nicknamed the ‘Loonie,’ it reflects how many Canadian dollars you need to buy 1 US dollar.
Oil prices significantly influence Canada’s economy due to its major oil exports. The pair is also closely tied to the US economy because of the close economic relations between the two neighbouring countries. Shifts in the Loonie’s exchange rate affect commerce and tourism between Canada and the US.
Factors that influence USDCAD include:
- Oil prices
- Bank of Canada (BoC) and Fed policies
- Economic data from both Canada and the US
NZDUSD (New Zealand dollar and US dollar)
Nicknamed the ‘Kiwi,’ it shows how many US dollars you need to buy 1 New Zealand dollar.
New Zealand’s economy is largely agricultural, so the Kiwi is sensitive to commodity prices, particularly dairy products. Tourism also plays an important role.
The Kiwi often moves in tandem with Australia and China’s currencies due to strong economic ties with both countries.
Factors that influence it include:
- Commodity prices
- The Reserve Bank of New Zealand (RBNZ) and Fed policies
- Economic data from both New Zealand and the US
- Chinese economic data
Cross Currencies
Cross currencies are currency pairs that are as highly traded as the majors but do not include the US dollar.
Some traders consider them as major currency pairs because they have high trading volumes.
The most highly traded cross currencies typically include:
- EUR/GBP (Euro/British Pound)
- EUR/JPY (Euro/Japanese Yen)
- EUR/CHF (Euro/Swiss Franc)
- GBP/JPY (British Pound/Japanese Yen)
- AUD/JPY (Australian Dollar/Japanese Yen)
- AUD/NZD (Australian Dollar/New Zealand Dollar)
- GBP/CHF (British Pound/Swiss Franc)
- NZD/JPY (New Zealand Dollar/Japanese Yen)
These pairs are popular due to their significant trading volumes and the economic ties between the currencies involved.
Cross currencies are generally important in that they offer you opportunities to diversify your trading strategies and capitalise on movements in specific countries without the influence of the US dollar.
What Affects the Prices of Major Currency Pairs?
Several factors influence the price movements of major currency pairs. Staying informed and responsive to them is essential for successful trading. The factors that you need to keep an eye on include:
- Economic Indicators: Data such as GDP growth, employment rates, inflation, and retail sales impact currency value by reflecting a country’s economic health.
- Central Bank Policies: Interest rate decisions, quantitative easing, and other monetary policies from central banks can significantly affect currency prices.
- Political Stability and Events: Political events, elections, and geopolitical tensions can lead to fluctuations in currency values due to uncertainty and risk sentiment.
- Market Sentiment: Traders’ perceptions and risk appetite can drive demand for certain currencies, influencing their prices.
- Trade Balances: A country’s trade balance, ie., the difference between its exports and imports, can affect currency demand. A trade surplus typically strengthens a currency, while a deficit can weaken it.
- Interest Rate Differentials: Differences in countries’ interest rates can attract investors to higher-yielding currencies, affecting exchange rates.
- Global Economic Trends: Broader economic trends, such as commodity prices and global economic growth, can impact currencies linked to those economies.
How to Trade Major Currency Pairs
Are you interested in trading major currency pairs? Here is our step-by-step guide to get you started:
- Select a reliable forex broker and open a trading account.
- Choose the major currency pair you want to trade.
- Conduct thorough market analysis to understand the factors influencing your chosen pair.
- Schedule your trading times by keeping an eye on the trading sessions.
- Execute your trades based on your analysis.
- Monitor your positions closely.
- Review your trades and refine your approach.
Final Thoughts
Major currency pairs are the most traded currency pairs in the world. They are characterised by high liquidity, especially during certain trading sessions, and low volatility, which makes them ideal for beginners and traders who want to minimise their risk. These currency pairs are so significant in the financial world that mastering them is a foundational step for any forex trader. Thankfully, economic data and news are never lacking when it comes to majors. Our advice to you is to take the time to understand what moves them before beginning to trade them.
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Frequently Asked Questions
1. How many major currency pairs are there?
This is a debated topic as traders can disagree on what counts as a major currency pair. The most common approach is that there are 7 major currency pairs (4 traditional majors and 3 commodity pairs):
- EUR/USD (Euro/US Dollar)
- USD/JPY (US Dollar/Japanese Yen)
- GBP/USD (British Pound/US Dollar)
- USD/CHF (US Dollar/Swiss Franc)
- AUD/USD (Australian Dollar/US Dollar)
- USD/CAD (US Dollar/Canadian Dollar)
- NZD/USD (New Zealand Dollar/US Dollar)
2. What is the difference between major and minor currency pairs?
Minor currency pairs (also known as cross currencies) do not include the US dollar. Additionally, they are generally less liquid and have lower trading volumes than major currency pairs. However, some traders accept some cross currencies as major currency pairs because they have high trading volumes.
3. Are major currency pairs the best pairs to trade?
That depends on your trading goals and strategies. Major currency pairs are often considered the best pairs to trade because they are highly liquid and have tight spreads. The fact that they are less volatile means there is less risk of unexpected price swings. They are also influenced by well-documented economic indicators and central bank policies, which provides ample data for those who like to make informed trading decisions.
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