MAJOR CURRENCIES AND PAIRS

MAJOR CURRENCIES AND PAIRS

THE U.S. DOLLAR

The  U.S.  dollar  (USD)  is  the  base  or  quote  currency  with  the  following FOREX major currency pairs: USD/JPY, USD/CAD, USD/CHF, EUR/USD,GBP/USD,  AUD/USD,  and  NZD/USD.  Additionally,  the  USD  is  the  base currency  and  is  paired  with  the  following  currencies:  NOK,  SEK,  SGD,DKK,  CNY,  MXN,  BRL,  ZAR,  and  other  exotic  currencies  depending  oneach broker’s availability.

The  USD  (also  abbreviated  $)  is  the  official  currency  used  in  the United States of America. It is considered the standard currency unit that is used in commodity markets across the globe (especially gold and crude oil markets).  It  also  is  currently  the  most  employed  reserve  currency  in  the world.

 This allows the country to hold trade deficits with other countries without experiencing depreciation.

The volatility of the currency is usually low to medium. The economy of  the  United  States  has  the  strongest  influence  on  the  rest  of  the  world,especially  in  the  computer  technology,  medical,  aerospace,  and  military fields. It is principally market-oriented; thus corporations and private businesses lead in decision making.

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 THE EURO

The euro (or EUR) is the base or quote currency with the following FOREX major  and  crossed-rate  currency  pairs: EUR/USD,EUR/JPY,EUR/GBP,EUR/CHF, EUR/AUD, EUR/CAD, and EUR/NZD. Additionally,the EUR is the base currency and is paired with the following currencies: NOK,SEK,SGD,DKK,CNY,MXN, BRL, ZAR, and other exotic currencies depend-

ing on each broker’s availability.

The euro is the currency that is actually used in most member countries

of the European Union. It was created in 1999 and implemented in 2002

and  represents  the  result  of  the  most  important  monetary  reform  on  the

entire continent. It was designed with the intent of rendering free trade eas-

ier between the members of the Euro zone, aiming at the same time for a

political  integration.  The  EUR/USD  currency  pair  is  nicknamed  “fiber,”

and  this  is  said  to  come  from  the  fact  that  the  Euro  zone  comprises  the

greatest optical fiber network in the world. Its market volatility used to be

low, but it has been seen to increase to medium in the recent months.

The European Central Bank (ECB) and the other central banks of every

member  country  manage  the  currency  through  the  European  System  of

Central Banks (ESCB). The ECB is the only authority that has the power to

set monetary policy, whereas the issuing and distribution of notes and coins

are done by the other members of the ESCB. All the decisions and proce-

dures among the members of the European Union are based on agreements

between its member countries. Adoption of the euro has allowed the Euro

zone to become the largest economy in the world. This actually makes it a

stronger currency than the U.S. dollar. To know more You can always go to

Common knowledge about the trading on Forex Foreign exchange as a part of the world financial market

 THE AUSTRALIAN DOLLAR

The Australian dollar (AUD) is the base or quote currency with the following FOREX major and crossed-rate currency pairs: AUD/USD, AUD/JPY,AUD/CHF,  AUD/NZD,  EUR/AUD,  GBP/AUD,  and  AUD/CAD.  It  is  also the base currency in some exotic pairs.

The AUD is the official currency of the Commonwealth of Australia. Itis also familiarly called the “Aussie,” which nickname also extends to the AUD/USD currency pair. It is the sixth most traded currency in the FOREX market  and  accounts  for  about  5  percent  of  worldwide  foreign  exchange transactions.  Its  popularity  stems  from  the  almost  inexistent  intervention of Australia’s government in the FOREX market, with the add benefit of Australia’s  political  and  economic  stability.  The  volatility  it  shows  in  the markets is low.

Australia’s  economy  is  based  on  domestic  industrial  production (particularly  of  machinery  and  transportation  equipment)  and  export  of raw materials (mostly from its huge mining activity) and products from its agricultural sector.

THE CANADIAN DOLLAR

The Canadian dollar (CAD) is the base or quote currency with the follow-

ing FOREX major and crossed-rate currency pairs: USD/CAD, CAD/JPY,

CAD/CHF, AUD/CAD, EUR/CAD, GBP/CAD, and NZD/CAD.

The CAD is the official currency of Canada. Coin and bill denominations are similar to those of the U.S. dollar. It is familiarly called the “loonie”because of the image of a loon that appears on one of the faces of the coins,and traders also use this nickname to designate the USD/CAD currency pair.The volatility of the Canadian dollar in the FOREX market is low, although it is heavily related to fluctuations in oil prices.

The  economy  of  Canada  is  quite  similar  to  that  of  the  United  States,being market- and production-oriented,having evolved from a mostly rural economy  (before  World  War  II), and  now  being  principally urban and industrial, with the increase in manufacturing, mining, and service sectors. Its principal trading partner is the United States.

THE BRITISH POUND

The  British  pound sterling(GBP)is the base or quote  currency  with  the following FOREX major and crossed-rate currency pairs:  GBP/USD,GBP/JPY,  EUR/GBP,GBP/CHF,GBP/AUD,GBP/CAD,and GBP/NZD.Additionally, the GBP is the base currency paired with the following currencies: NOK, SEK, SGD, DKK, CNY, MXN, BRL, ZAR, and other exotic currencies depending on each broker’s availability.

The GBP is the official currency used in the United Kingdom (Great Britain). It is one of the world’s most widely traded currencies, along with the U.S. dollar, the Japanese yen, the euro, and the Swiss franc. Additionally, it is the currency unit with the highest value among the “majors.” The GBP/USD  currency  pair  is  familiarly  called  the  “cable”  in  traders’ slang because the rates originally were transmitted via a trans-Atlantic telegraph cable. The market volatility of this currency is low to medium. The economy of the United Kingdom is one of the largest in the world,

with  a  strong  agriculture  and  mining  industry.  The  services  sector repre sents the main percentage of the gross domestic product, and tourism has

been developing strongly in recent years.

THE SWISS FRANC

The  Swiss  franc  (CHF)  is  the  base  or  quote  currency  with  the  following

FOREX  major  and  crossed-rate  currency  pairs:  USD/CHF,  CHF/JPY,GBP/CHF, EUR/CHF, CAD/CHF, AUD/CHF, and NZD/CHF.The CHF is the official currency of Switzerland and Liechtenstein. The currency is used by the Central Bank of Switzerland. The letters CHF stand for “Confederatio Helvetica Franc.” The USD/CHF currency pair is familiarly referred to as the “Swissie”among FOREX traders. The volatility of the Swiss franc in the FOREX market is usually low to moderate.The CHF is a fairly stable currency,especially in its relationship to the euro,  with  which it maintains a strong correlation. This  causes  the EUR/USD and USD/CHF currency pairs to be the highest negatively correlated pairs, with a factor of more than 90 percent. Thanks to Switzerland’s strong  political  and  economic  stability,  the  currency  is  used  mostly as a reserve currency by financial institutions  and  wealthy  private  individuals throughout the world.

THE JAPANESE YEN

The Japanese yen (JPY) is the base or quote currency with the following

FOREX  major  and  crossed-rate  currency  pairs:  USD/JPY,  EUR/JPY,

GBP/JPY, CHF/JPY, CAD/JPY, AUD/JPY, and NZD/JPY.

The JPY is the official national currency of Japan. Originally pegged to the USD after  World War II,the yen switched to a system of floating exchange rates after 1971. The volatility of the JPY in the FOREX market is usually low to medium.

Japan’s economy is predominantly based on its manufacturing industry.

The JPY traditionally has been a weak currency because its circulation is limited to domestic business, thus hindering Japan’s position with regard to foreign trade. Additionally, the country depends completely on oil imports and exclusively on its export of manufactured goods; this renders the JPY very sensitive to rises in crude oil prices and overall energy costs.

The weakness of the currency has been maintained over the years as a protection for the local manufacturing and export industries; however,the JPY has been experiencing a rising trend that has diverted some foreign investments to other countries, where much lower costs still can be found.

The most important index of Japan’s economy is the industrial production index, which is strongly correlated with the export index.

THE NEW ZEALAND DOLLAR

The New Zealand dollar (NZD)is the base or quote currency  with  the  

following FOREX major and  crossed rate currency pairs: NZD/USD,NZD/JPY,GBP/NZD,EUR/NZD,NZD/CHF, and NZD/CAD.

The NZD is the official currency of New Zealand and some of the islands on the Pacific Ocean. The currency is informally called the “kiwi”because of the image of a kiwi bird that appears on its $1 coin, and the term also designates most particularly the NZD/USD pair. The volatility of the NZD in the FOREX market is low to medium.

Similar to what happened in Australia, the economy of New Zealand has been transformed from an agricultural-based market limited to British concessionaires into a free and industrialized market now competing on the global scene. This has greatly helped the development of technology;however,New Zealand’s exports  still  depend  mostly  on  agricultural products.

THE DOLLAR INDEX

The  U.S. Dollar Index(USDX)measures the global value of the USD relative to a basket of foreign currencies (e.g., Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish krona, and Swiss franc) through a geometric progression weighted-average calculation. It was started in March1973 with a value of 100, when the leading trade nations agreed to freely quote their currencies one against the other. After reaching a peak of 165,the USDX has been trading lower over the recent years, dropping almost to 70 in March 2008. The USDX is listed on the New York Board of Trade,and its value is updated continuously 365 days a year. Its volatility can be compared  with  that  of  stock  index  futures  because  of  its  amplitude  and variability.

THE DOW JONES INDUSTRIAL AVERAGE (DJIA)

DOW THEORY 

In 1884, Charles H. Dow, who was editor of the Wall Street Journal,created two averages or sectorial indices for the New York stock market, one called the Dow Jones Industrial Average(DJIA, or Index of the Industrial Sector)and the other called the Dow Jones Transport Average(DJTA, or Index of the Transportation Sector). In this way, Dow tried to establish an indicator of economic activity,using for it an average  of  the evolution of certain sectors in the stock market.

Dow thought that a rise in economic activity implied greater industrial production.  Thus,when economic activity was increasing,companies would see increased demand for their stocks, and therefore, the quotations for these companies on the indices would rise.As a result, the other sectors would be affected,and their businesses would  benefit  and,consequently,the prices of their shares would  rise. Based  on  these  indexes,  Charles  Dow  formulated  his  theory  that  is  today  the  basis  of  modern  technical  analysis  and  therefore of Chartism(analytical study based on graphs of the evolution of price for a particular

company).

DOW JONES INDEX

The Dow Jones Industrial Average (quoted as DJI on the New York Stock

Exchange,  also  quoted  as  DJIA  and  informally  named  “the  Dow”)  is  the

second-oldest  market  index in the United States,after the Dow Jones Transportation  Average  (DJTA)from the same creator.This index shows how certain stocks have been trading. It was developed to evaluate performance within the most important sectors of the American stock market. It is calculated by computing the stock prices of 30 public American companies that represent the wider range of shares held in the market. It is possible to invest in the DJI through a series of exchange-traded funds  (ETFs) and  options  tied  to  those  ETFs  (see  Appendix  table  “DowJones Industrial Average”).

GOLD CFDS 

Metals, and most particularly gold, are usually traded through the futures market  or  gold  exploration  stocks.  More  recently,  introduction  into  the markets  of  contracts  for  difference(CFDs)  has  allowed  traders  to  have  easier access to market transactions involving metals. The market quoted by the CFD provider is a two-way market, as with FOREX currency pairs,and thus the provider obtains a profit by means of the spread, charging no commissions on transactions.

A gold CFD is a financial derivative that represents a theoretical order to buy or sell at least 10 ounces of gold, which is the minimum required to open a gold transaction. The margin required is quite low on gold CFDs,usually representing 2 to 3 percent of the value of the transaction. You can take the contract on the spot price or the futures price, with standard contracts  providing the equivalent of US $100 per $1 movement in the gold price and mini contracts providing one-tenth that size.

There  is  also  another  type  of  CFD  used  for  gold,  called the binary CFD,that is based solely on the daily rise or fall in the price of gold, with value  taken  at  the  daily  close.  If  gold  rises,  the  binary  CFD  will  close  at 100, and if gold falls, it will close at 0 at the end of the day. The investor’s profit or loss is determined by the difference between the effective opening and closing prices.

CRUDE OIL

The price of crude oil is influenced directly by OPEC (Organization of the

Petroleum  Exporting  Countries),  which  is  made  up  of  12  nations  whose

economies  depend  on  oil  export  revenues. The  fluctuation in prices is related  to  production  quotas  that  are  imposed  by  this  organization. The final prices that consumers pay for oil products are determined by several components: supply and demand, effective production, refinery costs, and taxes on oil, which can vary greatly depending on country. Crude oil is traded on the market as a commodity through futures and spot markets as well as CFDs.

CROSS-RATE CURRENCY PAIRS 

The currency pairs that derive their respective rates from their individual relationships  with  a  third  FOREX  currency  rate  are  called crosses or cross-rate pairs.

All currency pairs that do not include the U.S. dollar fall into this group: EUR/GBP, EUR/CHF, EUR/AUD, GBP/CHF, CHF/JPY,CAD/JPY, EUR/JPY, and GBP/JPY. They are usually very volatile owing to a lesser liquidity, and this causes the spread between bid and ask prices to be much wider than on most majors, for example, the most liquid pairs, such as EUR/USD and USD/JPY. This can be a disadvantage because it increases the trading risks, but some of them can represent a very interesting  option,  such  as  the  GBP/JPY  pair,  precisely  because  of  its  high volatility.

EXOTIC CURRENCY PAIRS

Some  of  the  secondary  foreign  currencies  that  are  yet  somehow  traded heavily in the FOREX market are the  exotic currency pairs and a few European but non-euro-based denominations. They are usually traded as quote currency and paired with some of the most prominent majors (e.g., USD,EUR, GBP, and AUD), but they also can become the base currency between each other.

CHINESE YUAN OR RENMINBI

The Chinese yuan (CNY) is the official currency of China. CNY is the official International Organization for Standardizations (ISO) code for the renminbi (RMB), issued by the People’s Bank of China. The currency displays a low to medium volatility  in  the  FOREX  market.  In  July  2005,  China revalued the yuan (which was pegged to the USD) to allow it to fluctuate versus a basket of currencies and protect it from large swings owing to its ties with the American currency. China’s economy has become increasingly market-oriented  and  open  to  foreign  trade  and  investments  since  1978,which represent a strong element in its overall growth.

SWEDISH KRONA

The Swedish krona (SEK) is the official currency of Sweden. Its volatility is evaluated as medium to high mostly owing to the wide extent of foreign trade, where it constantly depends on the economic status of other currencies.  Sweden is a member of the  European  Union,but it didn’t adopt  the  euro  and  instead  maintains  its  local currency as official.The country shows a low and stable inflation rate, and its economy is mostly based on exports, especially in the areas of information technology and telecommunications.

NORWEGIAN KRONE

The Norwegian krone (NOK) is the official currency of Norway. The country is one of the largest exporters of oil, and increases in the demand for oil have injected a great deal of money into its economy,making it very dependent on fluctuations in oil  prices,  however.  The  volatility of the currency

itself is low.

The economy of Norway is more service-oriented, and the country is involved in a great number of offshore activities. It is a small country with a small population, but it is one of the wealthiest countries in Europe.

Other exotic currencies you can find are the Danish krone (DKK) and The Singapore dollar (SGD) with low volatility, the Mexican peso (MXN)

and the Brazilian real (BRL) with low to medium volatility, and the South African rand (ZAR) with medium volatility.

THE IRAQI DINAR

 Although not yet traded on the FOREX, the Iraqi dinar has been highly pro-

moted as a  good  investment  in  recent  years  since  Central  Bank  of  Iraq

started issuing a new and stable currency that experienced a great revalua-tion, rising  approximately  four  times its original value (from  about  4000 dinars per dollar as its lower low to 980 dinars per dollar as its highest high,actually trading at around 1200 dinars per dollar). This boom had started a series of wild speculations and the spread of a huge promotion,especially on  the  Internet,as well as scams associated with that promotion,where unusually  higher  rates  of  exchange  and  thus  extraordinary  returns  were promised in the hope that enough speculators would be attracted, thus making the exchange rate explode much higher as soon as the currency enters the market.

However, the rates for the currency vary over a wide range, and there is a huge difference between the official fixed rate of 1449 dinars for $1 set up by the International Monetary Fund (IMF) for the Central Bank of Iraq and retail quotes from dealers and trading companies, which offer quotes between 1050 and 1350 dinars per $1. Additionally, this is a currency with practically no liquidity, mostly because of the discrepancies in price and the fact that the banks do not trade the dinar openly with the public. In addition,dealers will sell dinars to the market but not always buy back the dinars, so there  are  few  counterparts  for  transactions,  making  it  difficult  for  the investors to cash out of the currency.

Finally, the  overextended negotiations on the Internet,with inexperi enced investors trapped and blinded by the fabulous promotion, allow deal ers to mix old dinars, bought at a much cheaper price, and new dinars,thus lowering the value of  the  original amount purchased,which puts the investor immediately at a loss. Some other dealers offer just a blatant scam,taking the money of the investor and disappearing, never delivering the currency. It is extremely important to be well informed before risking funds into any currency investment, especially when the offers are “too good to be true.”

the source by : JAMES DICKS