The foreign exchange market, or forex, is the largest and most liquid financial market in the world. Traders from all over the globe take part in buying and selling currencies with the aim of making profits. As a forex trader, creating a watchlist is an essential step to achieving success. But what forex pairs should you include in your watchlist? This article aims to provide an in-depth analysis of the forex pairs that should be on your radar.
Firstly, it’s important to note that there are three categories of forex pairs – major, minor, and exotic. The major pairs are the most commonly traded and include the US dollar (USD) as one of the currencies. They include EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The minors or cross-currency pairs do not include the USD as one of the currencies. They include EUR/GBP, EUR/JPY, and GBP/JPY, among others. The exotic pairs are those that involve the currencies of emerging economies such as the Brazilian real, South African rand, and Mexican peso.
When creating a watchlist, it’s advisable to focus on the major and minor pairs. These pairs are highly liquid, have lower spreads, and are less volatile than the exotic pairs, making them ideal for beginner traders. Here are some forex pairs that you should include in your watchlist:
1. EUR/USD
The EUR/USD is the most commonly traded forex pair, accounting for over 20% of all forex transactions. It’s highly volatile, making it ideal for experienced traders. The EUR/USD is affected by various economic indicators such as GDP, inflation, and interest rates from both Europe and the USA. It’s also influenced by political events such as Brexit and the US presidential elections.
2. USD/JPY
The USD/JPY is the second most commonly traded forex pair, accounting for 14% of all forex transactions. It’s less volatile than the EUR/USD and is less influenced by economic events. The USD/JPY is affected by the Bank of Japan’s monetary policy, which aims to keep inflation at 2%. It’s also influenced by global economic events such as the US-China trade war and geopolitical tensions in the Korean peninsula.
3. GBP/USD
The GBP/USD is known as the “cable” and accounts for 9% of all forex transactions. It’s highly volatile due to the uncertainty surrounding Brexit and the UK’s economic outlook. The GBP/USD is affected by economic indicators such as GDP, inflation, and interest rates from both the UK and the USA. It’s also influenced by political events such as the UK general elections and the Bank of England’s monetary policy.
4. EUR/JPY
The EUR/JPY is a cross-currency pair that accounts for 4% of all forex transactions. It’s highly volatile and is influenced by economic indicators from both Europe and Japan. The EUR/JPY is also affected by global economic events such as the US-China trade war and geopolitical tensions in the Korean peninsula.
5. USD/CHF
The USD/CHF is a minor pair that accounts for 3% of all forex transactions. It’s less volatile than the other major pairs and is influenced by the Swiss National Bank’s monetary policy, which aims to keep inflation below 2%. The USD/CHF is also affected by economic indicators from both the USA and Switzerland.
In conclusion, creating a watchlist is crucial for forex traders. The forex pairs you include in your watchlist will determine the success of your trading strategy. It’s advisable to focus on major and minor pairs as they are highly liquid, have lower spreads, and are less volatile than the exotic pairs. The forex pairs outlined above – EUR/USD, USD/JPY, GBP/USD, EUR/JPY, and USD/CHF – are some of the most commonly traded pairs and should be on your radar. It’s important to keep abreast of economic indicators, geopolitical events, and monetary policy changes that may affect these pairs.
