The foreign exchange market, also known as the forex market, is the largest financial market in the world. It involves the buying and selling of currencies from different countries, and it operates 24 hours a day, five days a week. In the forex market, currency pairs are traded, and each pair consists of two currencies. The value of each currency is determined by its demand and supply in the market.
Forex pairs do not exist in isolation, and they often follow the movements of other pairs. This is because the forex market is interconnected, and the movements of one currency can affect the value of another currency. In this article, we will explore which forex pairs follow other forex pairs.
1. EUR/USD and GBP/USD
The EUR/USD and GBP/USD are two of the most traded currency pairs in the forex market. They are also closely related, and their movements often follow each other. This is because both currencies are from developed countries, and they are affected by similar economic factors. For example, if the European Central Bank (ECB) announces an interest rate cut, the EUR/USD and GBP/USD pairs are likely to both fall in value.
2. USD/JPY and Nikkei Index
The USD/JPY is another popular currency pair in the forex market, and it is closely related to the Nikkei Index, which is the main stock market index in Japan. This is because the Japanese economy is export-driven, and a weaker yen can boost the country’s exports. When the USD/JPY pair rises, it often leads to an increase in the Nikkei Index, and vice versa.
3. AUD/USD and Gold
The Australian dollar (AUD) is often referred to as a commodity currency, as it is heavily influenced by commodity prices. The price of gold, in particular, has a strong correlation with the AUD/USD pair. This is because Australia is one of the largest gold producers in the world, and the price of gold often affects the country’s economy. When the price of gold rises, it often leads to an increase in the value of the AUD/USD pair.
4. USD/CAD and Oil
The Canadian dollar (CAD) is also considered a commodity currency, as Canada is a major producer of oil. The price of oil often affects the value of the USD/CAD pair. When the price of oil rises, it often leads to a decrease in the value of the USD/CAD pair, as a stronger Canadian dollar makes oil exports more expensive.
5. USD/CHF and EUR/USD
The USD/CHF pair is often referred to as a safe-haven currency pair, as both the US dollar and the Swiss franc are considered safe-haven currencies. When there is uncertainty in the market, investors often flock to these currencies as a safe investment. The EUR/USD and USD/CHF pairs are also closely related, as the franc is often used as a hedge against the euro.
In conclusion, the forex market is a complex and interconnected market, and forex pairs do not exist in isolation. The movements of one currency can often affect the value of another currency, and there are several pairs that follow each other closely. By understanding the relationships between different currency pairs, traders can make informed decisions and potentially increase their profits.
