It is so easy to get confused in the world of financial volatility and numerous assets that the FX market offers for trading. We know what you feel! Often newbies and other less experienced traders select the simplest way by referring to the most traded and popular currency pairs. Is this the right path? We are going to find out.
Sentiments apart, remember: there is no such thing as "the most profitable currency pair" in Forex. Market conditions and your final goal matter much more than 'popularity' of this or that asset. Besides, you should be very much aware of the peculiarities of each currency pair. Once you know how they all function, get historical data and find out what economic events and announcements influence their trends, you'll be pretty much packed for potentially profitable trading.
About 70% of all Forex trades are performed with the US Dollar, Euro, and Japanese Yen; the British Pound and Australian Dollar leg behind with 10%. If I am to generalize, USD-based pairs are more predictable; those with GBP provide more intraday volatility, and JPY traditionally is a safe house along with Swiss Franc (CHF). Keep this in mind and prepare to learn more about everybody's A-list pairs.
Luckily, we got it covered. Use the info below and burst those markets!
Currency Pair Top Chart
EUR/USD
It is, by far, the most influential currency pair in the FX market because it allows traders to make use of the world's most influential economies and take advantage of liquidity and volatility. Both currencies are very strong, offer tight spreads, and are traded almost non-stop.
Fundamental trading is widely accepted for EUR/USD because both currencies are prone to even the slightest economic or political changes of their regions. So, always get some sort of risk control at hand like stop loss or take profit.
If you plan to trade this pair, never miss any news on the following:
- Interest rates by the Fed (United States Federal Reserve) and ECB (European Central Bank). When the US economy is striving, the price per pair is growing and vice versa.
- GDP
- Balance of Trade (BoT)
- Consumer Price Index (CPI)
- Non-Farm Payroll (NFP)
- Individual economic indicators of European countries, especially Germany, France, and Italy.
The time period to trade EUR/USD is very long, from 8:00 to 22:00 (GMT). This is when both London and New York sessions are open. The majority of activities is seen at 8:00 (GMT), at the beginning of the London session, and between 13:00 and 16:00 (GMT).
GBP/USD
It is one of the most liquid currency pairs in the Forex universe. Trading GBP/USD can be both challenging and extremely profitable if you are a fast and decisive market player. They say this pair is more suitable for skilled traders as it is vulnerable in terms of false signals and breakouts, wild movements, and overall impulsiveness. But if you are good at risk management and will not fall prey to false alarms, you can cash in on high volatility.
Use signals and trends for making the best market decisions when day trading. The best styles for this pair are swing and day trading. The trends for GBP/USD go in tandem with EUR/USD, GBP/JPY, and in alternative directions with EUR/CZK, USD/CZK, USD/CAD, USD/CHF.
The rate of this currency pair is affected by the Bank of England (BoE), Fed, inflation rates, and import-export flow between the US and UK, NFP, Trade Balance, Consumer Price Index, and Producer Price Index.
The best time to trade GBP/USD is 08:00-10:00 GMT, and 12:00-15:00 (GMT).
USD/JPY
Market players love this pair; last year, it comprised 13% of all daily FX trades. No surprise here, because JPY is the most-traded currency in Asia, and USD – is the most common one worldwide. Thus, liquidity is very high. Also, USD/JPY features rather small spreads, that's why it can be very profitable if managed wisely.
The highest intraday volatility is between 12:00 and 15:00 (GMT) when both London and New York sessions are at full pace. You can also consider the spikes of price right after the opening of the Tokyo session.
Smart traders tend to refer to USD/JPY when times are uncertain. For example, when a pandemics or a financial crisis hits the world. For instance, in October 2008, JPY gained a 13-year high of 90.87 vs. USD. Following the Italian Elections in 2013, Yen rose 4% against the US dollar.
If you want to follow the news on USD/JPY, consider the announcements from the Fed, BOE, NFP, ECB, and the Bank of Japan.
EUR/GBP
This pair holds a very strong position and works perfectly for those who seek stability. It comprises two unique currencies: GBP - one of the world's oldest ones, and EUR - the world's youngest.
Throughout their history, the UK and EU had rather complex relationships. Thus, their market position depends on the political and economic strength of both countries, as well as several external factors. Since two economies are interdependent and are developing at a similar pace, the EUR/GBP pair holds a relatively safe price action.
Normally the currency pair is characterized by long periods of falling or rising trends with little fluctuations.
Though GBP/EUR has seen its moments of prolonged volatility during the global recession of 2007-2008 and the spikes of price whilst Brexit, nowadays, the situation tends to be calmer. GBP continues to trade in narrow ranges against EUR and will likely go on with this trend because traders are more confident now when Europe is easing the pandemic restrictions but still have concerns over a possible second wave.
You can trade EUR/GBP 24 hours a day, but the hottest time is from 6:00 to 16:00 (GMT).
Stay tuned and keep abreast of updates from the European Central Bank (ECB), Bank of England (BoE), UK Parliament, UK Office of National Statistics (ONS).
USD/CAD
The pair is among top-traded currencies with high liquidity, relative stability, and medium volatility. The Canadian dollar is a reserve and benchmark currency. By analyzing the performance of CAD against USD experts can indirectly detect the trend in the US economy. USD/CAD is often seen as a commodity pair. The exchange rate of energy resources such as crude oil and natural gas influences it. Whenever oil prices start rising, the CAD usually follows.
What is more, since the countries are neighbors, mergers and acquisitions are quite common. When the US company wants to acquire the one from Canada, it should first exchange a huge amount of money for Canadian dollars. Thus, the amount of funds that flow through the foreign exchange market is immense.
Get ready to make fast trading decisions based on OPEC meetings and the state of oil inventories. Other announcements you may consider will be made by the Fed, Bank of Canada (CAD), NFP, Trade Balance, Consumer Price Index, Producer Price Index, and CAPP (Canadian Association of Petroleum Producers).
Trading gets active between 8:00 and 17:00 (GMT). USD/CAD shows little movement during the Asian trading session. Beware of fakeouts during the morning European session.
AUD/USD
Over the past decade, the popularity of this pair has grown dramatically. Here is why. It is good for day trading because of the high interest rate difference between Australia and the US. It guarantees high volatility. When the bulls are ruling the market, the price will increase faster, and when the bears step in, it can drop rapidly. Besides, Australia has one of the most stable economies due to export, commodities, and trading relations with China.
Even though the pair is rather stable, you should still manage risks not to lose on volatility. Always keep track of commodity prices, news on trading relations with Asian countries (Chine, Japan, India), the Fed, the Reserve Bank of Australia (RBA), reports on GDP, Trade Balance, NFP, Consumer Price Index (CPI) , Producer Price Index (PPI), elections, and natural disasters.
The AUD/USD is positively correlated with GBP/USD and EUR/USD. It means that they more in the same direction. The negative correlation is with USD/CHF, USD/JPY, and USD/CAD.
The busiest hours for trading are between 19:00 and 4:30 (GMT).
NZD/USD
It is now the 10th ranked traded currency pair globally, which accounts for 2% of the total turnover.
Kiwi (a nickname for NZD/USD) has a low margin – it means it's cheaper to trade. This can lead to overtrading. So, only experienced market players are advised to trade this pair. Carry trading is a preferred strategy because of the interest rate difference between the two involved currencies.
New Zealand's economy depends on commodities and moves hand-in-hand with the economic performance of Australia.
The following economic indicators influence the exchange rates of NZD/USD: policies by the Fed and Reserve Bank of New Zealand (RBNZ), GDP of both countries, commodity prices, NFP and Household Labor Force Survey, the Consumer Price Index, Producer Price Index, Trade Balance, political events globally and especially in Australia and China.
Trade the pair from 6:00 to 8:00 to catch the volatility, between 12:00 and 17:00 to witness the most active phase, and sometimes from 21:00 to 2:00 (GMT).
Summary
Don't get lured by brokerages that advise you on the best currency pairs to trade. There is no such category! Just concentrate on your final goal and consider the peculiars of the most well-known currency pairs. Each of them is unique and suits different trading strategies.
