Welcome to our guide on the top cross currency pairs to watch in the forex market. In this article, we will discuss what cross currency pairs are, why they are important, and provide a list of the top cross currency pairs you should keep an eye on. Whether you are a beginner or an experienced trader, understanding these currency pairs can help you make informed trading decisions in the forex market.
What are Cross Currency Pairs?
In the forex market, currency pairs are divided into two categories: major pairs and cross pairs. Major pairs include currencies like the Euro, US Dollar, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, and Australian Dollar. Cross currency pairs, on the other hand, do not involve the US Dollar as one of the currencies in the pair.
For example, if you were to trade the EUR/JPY pair, you would be trading the Euro against the Japanese Yen. In this case, neither currency is the US Dollar, making it a cross currency pair. Cross currency pairs provide traders with opportunities to diversify their portfolios and take advantage of currency movements without involving the US Dollar.
Why Cross Currency Pairs are Important
While major pairs are the most widely traded in the forex market, cross currency pairs offer unique trading opportunities. By trading cross currency pairs, traders can avoid the impact of US economic data and focus on the specific factors influencing the two currencies in the pair. This can provide more clarity and insight into the currency pair’s movements.
Cross currency pairs also allow traders to hedge their positions against currency fluctuations. For example, if a trader is long on the Euro but wants to protect against potential depreciation, they can short the EUR/JPY pair to offset some of the risk. By incorporating cross currency pairs into their trading strategies, traders can manage risk more effectively and potentially increase their profitability.
The Top Cross Currency Pairs to Watch
When selecting cross currency pairs to trade, it is essential to consider factors such as liquidity, volatility, and correlation with other currency pairs. Here are some of the top cross currency pairs to watch in the forex market:
- EUR/JPY (Euro/Japanese Yen)
- GBP/AUD (British Pound/Australian Dollar)
- USD/CAD (US Dollar/Canadian Dollar)
- AUD/NZD (Australian Dollar/New Zealand Dollar)
- CHF/JPY (Swiss Franc/Japanese Yen)
- NZD/JPY (New Zealand Dollar/Japanese Yen)
These cross currency pairs are known for their liquidity, volatility, and correlation with other major currency pairs. By monitoring these pairs, traders can capitalize on trading opportunities and stay informed about global economic trends affecting these currencies.
FAQs
What is the difference between major pairs and cross currency pairs?
Major pairs include currencies like the Euro, US Dollar, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, and Australian Dollar. Cross currency pairs do not involve the US Dollar as one of the currencies in the pair.
Why are cross currency pairs important in forex trading?
Cross currency pairs offer traders unique trading opportunities to diversify their portfolios, hedge against currency fluctuations, and focus on specific factors influencing the two currencies in the pair.
References
1. Investopedia. “Cross Currency”. Retrieved from https://www.investopedia.com/terms/c/crosscurrency.asp
2. Forex.com. “Major currency pairs”. Retrieved from https://www.forex.com/en/uk/trading/markets/major-currency-pairs/
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