Forex Currency Pairs Explained

Basically, currencies in Forex encompass all currencies in the world, used based on a floating exchange rate system or a managed floating exchange rate. However, to help traders better understand the level of popularity and characteristics of each type, currency pairs in Forex are divided into three main groups, namely:

1. Major currency pairs
2. Cross currency pairs
3. Exotic currency pairs

Below is an overview of the currency pairs included in these three groups along with their relationships. Regarding "Which pairs are best to trade?", this is relatively dependent on the knowledge, experience, and strategies of each trader, but generally, the most traded pairs are those with the highest liquidity and the lowest spreads.

Major Currency Pairs

Major currency pairs are currencies from a country paired with the US Dollar (USD). In addition to currencies, commodities are also traded with the US Dollar. This also applies to gold and silver trading in the Forex market. Below is a list of major currency pairs along with their symbols and nicknames (located in parentheses below):

• EUR/USD – Euro vs. US Dollar (Fiber)
• GBP/USD – British Pound vs. US Dollar (Sterling, Cable)
• AUD/USD – Australian Dollar vs. US Dollar (Aussie)
• NZD/USD – New Zealand Dollar vs. US Dollar (Kiwi)
• USD/JPY – US Dollar vs. Japanese Yen
• USD/CHF – US Dollar vs. Swiss Franc (Swissie)
• USD/CAD – US Dollar vs. Canadian Dollar (Loonie)
• XAU/USD – Gold
• XAG/USD – Silver

Among these pairs, the EUR/USD pair is the most traded in the Forex market and has the highest liquidity in the exchange. In terms of volume, EUR/USD ranks first with 27%, followed by USD/JPY with 13% and GBP/USD with 12%.

Price fluctuations of currency pairs can influence each other or have price correlations. The correlation between EUR/USD and GBP/USD is direct or similar, meaning that generally, the direction of their price fluctuations will be similar but not entirely the same. If the EUR/USD trend rises, it is assumed that the GBP/USD trend at the same time also rises. In this case, EUR/USD and GBP/USD are considered to have a positive or direct correlation.

The directional relationship between EUR/USD (blue line) and GBP/USD (red line) is seen in the weekly timeframe chart above. Conversely, USD/CHF and EUR/USD have a negative correlation or opposite trend fluctuations. If the EUR/USD trend rises, then USD/CHF is assumed to fall at the same time. This can be seen from the EUR/USD and USD/CHF charts on the same timeframe, where generally their price trends move in opposite directions.

The correlation factor between currency pairs is very important, especially for beginners, because misunderstanding the correlation when opening trade positions will increase risk. For example, buying EUR/USD and GBP/USD will increase risk (because both pairs are direct), unless at specific times. Similarly, buying EUR/USD and selling USD/CHF at the same time will also increase risk because they are direct.

Additionally, from the correlation illustration above, it can be seen that the price fluctuations of USD/CHF are often sharper compared to EUR/USD and GBP/USD, which both provide clearer price action signals. The characteristics of each currency pair, like this, need to be recognized by traders.

Commodity currencies are currencies from countries that heavily rely on commodity exports, including mining or agriculture. Among many types of currencies in Forex, the pairs used for this group are: AUD/USD, USD/CAD, and NZD/USD. Additionally, Gold (XAU/USD) and Silver (XAG/USD) are also included in the commodity currency group as both are commodities traded with USD.

All commodity currencies have a positive correlation with the main commodities produced by the country. AUD/USD has a positive correlation with XAU/USD (Gold); while USD/CAD has a positive correlation with global crude oil prices.

Cross Currency Pairs

Cross Currency Pairs are currency pairs traded between major currencies other than the US Dollar, for example:

• AUD/CAD – Australian Dollar vs. Canadian Dollar
• AUD/CHF – Australian Dollar vs. Swiss Franc
• AUD/JPY – Australian Dollar vs. Japanese Yen
• AUD/NZD – Australian Dollar vs. New Zealand Dollar
• CAD/JPY – Canadian Dollar vs. Japanese Yen
• CHF/JPY – Swiss Franc vs. Japanese Yen
• EUR/AUD – Euro vs. Australian Dollar
• EUR/CAD – Euro vs. Canadian Dollar
• EUR/CHF – Euro vs. Swiss Franc
• EUR/GBP – Euro vs. British Pound
• EUR/JPY – Euro vs. Japanese Yen
• EUR/NZD – Euro vs. New Zealand Dollar
• GBP/AUD – British Pound vs. Australian Dollar
• GBP/CHF – British Pound vs. Swiss Franc
• GBP/JPY – British Pound vs. Japanese Yen
• NZD/JPY – New Zealand Dollar vs. Japanese Yen

One factor that makes currencies in Forex widely traded is liquidity and volatility. In this case, Major Currency Pairs are often considered to have more moderate volatility and are easier to predict. However, some Cross Currency Pairs are also traded popularly, including EUR/JPY, AUD/JPY, GBP/JPY, and NZD/JPY.

Exotic Currency Pairs

Exotic Currency Pairs are currency pairs that include currencies from developing countries with high economic growth, paired with the US Dollar or Euro. Some popularly traded pairs include:

• USD/TRY – US Dollar vs. Turkish Lira
• EUR/TRY – Euro vs. Turkish Lira
• USD/ZAR – US Dollar vs. South African Rand
• USD/MXN – US Dollar vs. Mexican Peso
• USD/SGD – US Dollar vs. Singapore Dollar

The downside of trading Exotic Currency Pairs is the high spreads and low liquidity, making forex traders rarely choose them. This is because high spreads will increase trading costs, which in turn greatly affects the trader's profits or losses.

Comparison of Currency Pair Types

To help you better understand each type of currency pair, please refer to the following table:

The Right Time to Trade Each Type

The global Forex market is truly open 24 hours, but that does not mean the market is always active throughout the day, where we can trade under ideal market conditions. We often want to trade when the market is very volatile, meaning when prices rise sharply or when market price changes are very high and fast. Especially if we are trading with price action methods, then fast and flexible price movements will provide clearer signals.

Generally, there are three major trading sessions in a 24-hour period when trading forex, namely the Asian session, the London session, and the New York session. In each session, the characteristics of currency pair movements differ.

Asian Session

• The Asian session begins with the opening of the New Zealand and Australian markets at 6:00 PM EST, and one hour after that, the Tokyo market opens at 7:00 PM EST. The Tokyo market is quite important because Japan is the third-largest Forex market after London and New York, and the USD/JPY pair is also the third-largest traded volume after EUR/USD and GBP/USD.
• The major financial centres in Asia are Tokyo, Hong Kong, Singapore, and Sydney.
• In the Asian session, trading liquidity is usually low, so many traders choose to enter the market during the London or New York sessions. However, if there are strong psychological market driving factors, then price movements and volatility in the Asian session can still increase sharply.
• Economic data from Australia, New Zealand, Japan, and China are often announced in this session. As is known, economic data from China has greatly influenced currency pairs worldwide in recent years due to the sharp increase in value and trading volume compared to major countries in the world. In the Asian session, the movements of AUD, NZD, and JPY fluctuate more sharply compared to other types of currencies.
• If the market moves flat in this session, sharp movements usually occur in the London and New York sessions.

London Session

• London is the largest Forex market in the world, accounting for nearly 30% of global Forex trading volume. The London session will start when the Asian session is about to close, and during this overlapping period, price volatility and trading volume usually increase. In this session, the phenomenon of slippage or wide spreads is usually rare compared to the Asian session, as calm markets usually do not occur in this session.
• Economic data from European countries is announced in the London session, making related currencies (EUR, GBP, and CHF) traded strongly with sharply increased volume.

New York Session

• When the New York market opens at 8:00 AM EST (around 8:00 PM Vietnam time), London traders have just returned from their lunch break. This overlapping period from 8:00 AM EST - 12:00 PM EST (i.e., 8:00 PM to 12:00 AM Vietnam time) is the most active time with very high trading volume and liquidity.
• Almost all important economic data that has a significant impact is announced in this session, especially data related to USD and CAD.
• Since nearly 85% of global Forex trading is related to USD, all currency pairs paired with USD have high volatility potential in this session.
• Price movements tend to slow down after the London market closes, unless there are significant events such as USD interest rate announcements or statements from the central bank chairman (The Fed).
• The closing prices of the New York market are very important as they are usually used as a reference for daily market closures, including by traders using price action methods.

Note: EST (Eastern Standard Time) = GMT – 5 hours = Vietnam time – 12 hours (from November to March).
From March to November, Daylight Saving Time (DST) is applied in New York. During the DST period, Vietnam is 11 hours ahead of New York (DST). From November to March, EST is applied, and Vietnam is 12 hours ahead of New York (EST).

From the three sessions above, there is an overlap between the Asian session and the London session from 3:00 AM to 4:00 AM EST, as well as between the London session and the New York session from 8:00 AM to 12:00 PM EST. During these overlapping times, price volatility and trading volume usually increase significantly, while liquidity also increases.

Forex traders always take advantage of the overlapping time between the London and New York sessions from 8:00 AM to 12:00 PM EST for all trading activities, as during this tim,e almost all currency pairs in Forex have strong movements.