A currency pair is the expression of the value of one currency in comparison to another currency in the forex market. There are four major currency pairs which dominate the forex market scene. Over half of all daily trading volume occurs with the EUR/USD, USD/JPY, GBP/USD and the USD/CHF.
When a trader wants to take the pulse of the forex market, these major currency pairs are the best indicators. The most actively traded currency pair is the EUR/USD. This currency pair compares the European Union Euro against the United States Dollar. Every major trading desk has at least one and probably many EUR/USD traders.
A currency pair represents an individual economic and political relationship between two countries. Interestingly, GDP of the Eurozone bloc is roughly equivalent to the GDP of the United States. However, with debt levels on the rise in the fringe countries of the Eurozone, this currency pair’s future appears volatile.
Technicalities of the EUR/USD
- The Euro is the base currency and the U.S. dollar is the secondary or counter currency.
- The EUR/USD is traded in Euros.
- The pip value or minimum price fluctuation is in U.S. dollars.
- Profit and loss collects in U. S. dollars.
- Margin calculations in online trading are normally based in U.S. dollars.
When the EUR/USD goes down, the euro is getting weaker and the dollar is gaining in strength. In this case, the trader would position himself to sell if he believed the U.S. dollar was going to rise. If the trader was predicting the weakening of the U.S. dollar, he would in turn buy EUR/USD.