Choosing the right forex currency pair: Which currency pairs should traders follow

New traders often get confused when selecting the best forex currency pairs. This article will help you understand the characteristics, strengths, and optimal trading times for various currency pairs to make your trading decisions more effective.

What are forex currency pairs and why are they important to traders?

Forex currency pairs consist of a base currency (Base Currency) and a quote currency (Quote Currency). For example, EUR/USD where the euro (EUR) acts as the base currency, and the US dollar (USD) as the quote currency. An exchange rate of EUR/USD 1.3045 means 1 euro equals 1.3045 US dollars.

The price of forex pairs fluctuates based on various factors such as interest rates, economic data, and market sentiment. These changes are measured in pips (PIP), which are units used to record profit or loss in your trading positions. Traders leverage these exchange rate movements to generate profits from price differentials.

Top 10 most traded forex pairs comparison table

Most traded forex pairs

EUR/USD: The market standard

EUR/USD is the most traded currency pair in the world, attracting high interest from traders of all levels. This pair is a key indicator of global economic stability and trade relations between the Eurozone and the United States.

Decisions by the European Central Bank (ECB) and the US Federal Reserve (Fed) deeply influence its movements. Economic data such as GDP, employment figures, and interest rate decisions from both regions are primary drivers of this pair.

✦ Strengths: High liquidity, narrow spreads, easy to predict for beginners
✦ Best trading hours: 08:00 - 16:00 GMT (Overlap of London and New York sessions)
✦ Typical volatility: 70-90 Pips per day

USD/JPY: The safe haven of the Asian market

USD/JPY reflects the relationship between two major economies and serves as a benchmark for the Asian market. The Japanese Yen is considered a “safe” currency that investors turn to during times of uncertainty.

Monetary policy of the Bank of Japan (BoJ) and key economic announcements play significant roles. The interest rate differential between the US and Japan greatly impacts this currency’s movement.

✦ Strengths: Moderate volatility, clear response to geopolitical events
✦ Best trading hours: 23:00 - 03:00 GMT (Asian session) and overlapping hours
✦ Typical volatility: 50-70 Pips per day

GBP/USD: High volatility and many opportunities

GBP/USD or “Cable” has a long trading history, known for high volatility and responsiveness to economic and political developments. This pair is famous for its strong price swings.

The Bank of England (BoE) and the Fed influence its movements. Political events like Brexit have caused significant volatility at times.

✦ Strengths: High volatility, many profit opportunities, suitable for short-term and long-term strategies
✦ Best trading hours: 08:00 - 16:00 GMT (London-New York overlap)
✦ Typical volatility: 90-110 Pips per day

USD/CHF: Stability and risk hedging

USD/CHF or “Swissie” is a safe currency pair, as the Swiss Franc is highly stable. It moves inversely to global risk sentiment; during times of increased uncertainty, this pair often appreciates.

Monetary policy of the Swiss National Bank (SNB) and economic data such as inflation and exports are key factors.

✦ Strengths: Lower volatility than GBP/USD, suitable for low-risk traders
✦ Best trading hours: 07:00 - 16:00 GMT (European-Asian session overlap)
✦ Typical volatility: 50-70 Pips per day

AUD/USD: Commodity-linked currency

AUD/USD or “Aussie” is heavily influenced by commodity prices, especially gold and iron ore. Australia’s trade relationship with China is a major factor.

Decisions by the Reserve Bank of Australia (RBA) and economic data from China impact this pair.

✦ Strengths: Commodity-linked, suitable for those interested in global trends
✦ Best trading hours: 00:00 - 04:00 GMT (Asian session) and overlapping with New York
✦ Typical volatility: 60-80 Pips per day

USD/CAD: Oil price correlation

USD/CAD or “Loonie” is named after the loon bird on the Canadian dollar coin. It is strongly influenced by crude oil prices, as Canada is a major oil exporter.

Economic data from both countries, Bank of Canada (BoC) and Fed decisions affect its movement.

✦ Strengths: Moderate volatility, energy market correlation
✦ Best trading hours: 12:00 - 20:00 GMT (New York session)
✦ Typical volatility: 60-80 Pips per day

EUR/GBP: Moderate volatility in Europe

EUR/GBP reflects the relationship between the Eurozone and the UK. It has less volatility than GBP/USD but remains sensitive to economic and political developments.

ECB and BoE play key roles. Events like Brexit and EU negotiations significantly impact this pair.

✦ Strengths: Moderate volatility, suitable for European-focused traders
✦ Best trading hours: 07:00 - 16:00 GMT (London session)
✦ Typical volatility: 40-60 Pips per day

USD/CNY: Emerging market influence

USD/CNY reflects the economic relationship between the US and China. The Chinese Yuan is tightly controlled by the People’s Bank of China (PBoC).

Monetary policy, trade balance, and economic data influence this pair more than geopolitical tensions.

✦ Strengths: Suitable for those understanding Chinese policies and emerging markets
✦ Best trading hours: 01:00 - 09:00 GMT (Asian session)
✦ Typical volatility: 50-70 Pips per day (Can move sharply during government interventions)

NZD/USD: Pacific commodity currency

NZD/USD or “Kiwi” is influenced by dairy product prices, as New Zealand is a leading dairy exporter.

The Reserve Bank of New Zealand (RBNZ), economic data, and global risk sentiment all impact its movement.

✦ Strengths: Suitable for those interested in Pacific markets and commodities
✦ Best trading hours: 00:00 - 04:00 GMT and 12:00 - 16:00 GMT
✦ Typical volatility: 50-70 Pips per day

USD/HKD: Stability from peg

USD/HKD is unique because the Hong Kong dollar is pegged to the US dollar by the Hong Kong Monetary Authority (HKMA). Its movement is influenced by US interest rate decisions and Hong Kong economic data.

Due to the peg, volatility is relatively low but can spike if there are speculations about changes to the peg system.

✦ Strengths: High stability, suitable for conservative traders and carry trades
✦ Best trading hours: 01:00 - 08:00 GMT (Asian session)
✦ Typical volatility: 10-30 Pips per day

Choosing the right forex pair for your trading style

Major currencies like the US dollar, euro, and yen dominate the forex market due to their stability and high trading volume. Factors affecting each pair include trade relations, changing interest rates, economic events, and political developments.

Monitoring news and global market movements is crucial, as these factors can impact trading outcomes. Real-time updates on forex pairs enable traders to make informed decisions and manage risks effectively.