What Are The Best Currencies to Trade?

In Forex markets, investors are able to trade many different instruments like currencies, commodities, cryptocurrencies such as Bitcoin and indices. However, I can say that the most popular instruments are currency pairs.

While trading currency pairs, you need to do both technical and fundamental analysis in order to be successful. By analyzing technical formations and following central bank decisions or watching economic data releases like GDP or employment reports you can always make money. So what are the best currency pairs and currencies to trade?

USD (U.S. Dollar)

As you can guess, most trading currency in the world is USD. As a reserve currency, U.S. Dollar has its own index called by US Dollar Index (DXY). The index consists of Euro (EUR), Japanese Yen (JPY), British Sterling (GBP), Canadian Dollar (CAD), Swedish Krona (SEK), and Swiss Franc (CHF) and is calculated by the using geometric average method.

So when the US Dollar index rises, that means the dollar is gaining value globally. For the opposite scenario, DXY shows us that US dollar is getting weaker.

Federal Reserve System (Fed) is the central bank of US created in 1913. FOMC (Federal Open Market Committee) meets every six weeks, 8 times in a year and the committee is comprised of 12 members (7 Fed Presidents and 5 Federal Reserve Board members). Dollar traders should beware of fundamental developments like FOMC monetary policy decisions, non-farm payroll reports, CPI & GDP data and press conferences.

The EURUSD tends to show a negative correlation with the USDCHF pair. On the other hand, it has a positive correlation with the GBPUSD pair. It is important to follow such corelations to get early warning. Because the technical analysis signals that have not yet taken place in a parity may have taken place in another parity.

EUR (Euro)

Euro is the second reserve currency after US Dollar. European Central Bank (ECB) is the central bank of the Eurozone and Executive Council meets usually 8 times a year. After every interest rate and decision, ECB President Mario Draghi speaks at the press conference. Press conference starts with the reading statement, then it will continue with Q&A. In Q&A part, depending on Draghi’s answers, market volatility increases.

Also, Euro traders should aware of Euro Zone inflation data releases. For Euro Zone, the biggest problem is low inflation and ECB trying to fight it with quantitive easing.

That’s why when the CPI rises in Euro Zone, Euro gaining strength and when it stays at low levels Euro falls. Because traders think that when inflation rises to %2 target, ECB will stop easing and start increases interest rates.

 JPY (Japanese Yen)

Japanese Yen is considering as a safe haven in financial markets like Gold and Swiss Franc. Bank of Japan (BoJ) is Japan’s central bank and its chair is Haruhiko Kuroda. BoJ also fighting with low inflation in many years like Euro Zone and Japan also applying Prime Minister Shinzo Abe’s economic policies named “Abenomics” since 2012.

When volatility rises in financial markets and during the risk-off times, investors usually chose Japanese yen as a safe haven. So, I can say that risk appetite is negative for Japanese yen most of the times. 

GBP (British Pound)

4th most traded currency in FX markets is British Pound. Bank of England is the central bank of United Kingdom and BoE’s Monetary Policy Committee (MPC) meets every month. GBP traders should follow UK’s most important economic data releases like CPI, Services PMI and Average Earnings Index. Better than expected data is good for GBP.

After Brexit Referendum in 2016, British pound significantly lost value and slumped to 168-year low. But after that GBP started gaining value slowly and in 2018, GBPUSD tested pre – Brexit levels.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.