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| Currency Pair Descriptions | ||||||||||||||||
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In the forex market, currency trading is always done in currency pairs, such as EUR/USD or USD/JPY. Accordingly, all trades result in the simultaneous buying of one currency and the selling of another. The base currency is the “basis” for the buy or the sell. It is useful to consider the currency pair as an instrument which can be bought or sold. The following are examples of situations that might lead you to choose a particular currency pair to trade: EUR/USD If, for example, you think the U.S. economy will continue to fall and that will hurt the USD, you click on BUY, you are buying euros expecting them to go up against the USD. If you click on SELL, you buy U.S. dollars, expecting them to climb against the euro. USD/JPY If, for example, you think that the Japanese government is going to weaken the yen in order to help its export industry, you would click on BUY, expecting the U.S. dollar to increase in value against the yen. If you think that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back to Japan, you would click on SELL, expecting the yen to strengthen against the U.S. dollar as Japanese investors sell their assets and convert their dollars to yen. GBP/USD If, for example, you think the British economy will continue to be the leading economy among the G7 nations in terms of growth, thus buoying the pound, you would click BUY, expecting the British pound to strengthen against the U.S. dollar. If you believe the British are about to commit themselves to adopting the euro, you would click SELL, expecting the pound to weaken against the dollar as the British devalue their currency in anticipation of merging with the euro. USD/CHF
If, for example, you think the Swiss franc is overvalued, you would click BUY, expecting the U.S. dollar to strengthen against the Swiss franc. If you believe that due to instability in the Middle East and in U.S. financial markets the dollar will continue to weaken, you would click SELL, expecting the Swiss franc to strengthen against the dollar. EUR/CHF If, for example, you think the Swiss government
wishes to devalue the currency to help exports in Europe, you would
click BUY, expecting the euro to increase in value against the Swiss
franc. If inflation started taking off in Germany and France, you
would click SELL expecting the Swiss franc to increase in value
against a devalued euro.
AUD/USD If, for example, you think that commodity prices
are going to rise dramatically, thus benefiting the AUD, you would
click BUY, expecting the aussie to strengthen against the U.S. dollar
due to Australia being a leading exporter of many commodities. If
you believe that Australia is heading into recession, you would
click SELL, expecting the U.S. dollar to strengthen against the
AUD.
USD/CAD If, for example, you think that the U.S. economy
is going to rebound while the Canadian economy goes into recession,
you would click BUY, expecting the U.S. dollar to strengthen against
the Canadian dollar. If you believe the Canadian dollar is fundamentally
undervalued and will strengthen against the U.S. dollar, you would
click SELL, expecting the CAD to rise against the U.S. dollar. NZD/USD If, for example, you think the success of Lord
of the Rings will cause tourists to flock to New Zealand and pump
money into the local economy, you would click BUY, expecting the
NZD to strengthen in value against the U.S. dollar. If you expect
the AUD is going to fall along with commodity prices, you would
click SELL expecting the NZD to drop in value against the U.S. dollar.
EUR/GBP If, for example, you believe the British are
about to commit themselves to adopting the euro, you would click
BUY, expecting the pound to weaken against the euro as the British
devalue their currency in anticipation of the merger. If you believe
that Great Britain's economy will grow at a faster rate than Europe's,
you would click SELL, expecting the British pound to rise in value
against the euro.
EUR/JPY If, for example, you believe that the Japanese
banking crisis will continue to get worse, you would click BUY expecting
the euro to rise against the yen. If for example you believe that
Europe is going into recession, thus weakening the euro, you would
click SELL, expecting the euro to drop in value against the yen.
GBP/JPY If, for example, you believe that the BOE is
going to raise interest rates, you would click BUY, expecting the
British pound to increase against the yen due to interest rate arbitrage.
If you think the Nikkei index will rise at a higher rate than the
FTSE, thus buoying the yen, you would click on SELL, expecting the
yen to increase against the British pound.
CHF/JPY If, for example, you believe conflict in the
Middle East may cause a spike in oil prices, you would click BUY,
expecting the CHF to increase against the yen due to Japan's reliance
on imported oil and the CHF's safe-haven status. If you believe
there will be more stability in the region, you would click SELL,
expecting the yen to rise against the CHF.
GBP/CHF If, for example, you believe that the BOE is
going to raise interest rates, you would click BUY, expecting the
British pound to increase against the CHF due to interest rate arbitrage.
If you believe the British are about to commit themselves to adopting
the euro, you would click SELL, expecting the pound to weaken against
the CHF as the British devalue their currency in anticipation of
merging with the euro.
EUR/AUD If, for example, you believe that Australia is
heading into recession, you would click BUY, expecting the euro
to strengthen against the AUD. If you think that commodity prices
are going to rise dramatically, you would click SELL, expecting
the aussie to strengthen against the euro due to Australia being
a leading exporter of many commodities.
EUR/CAD If, for example, you think that the German
economy is going to rebound while the Canadian economy goes into
recession, you would click BUY, expecting the euro to strengthen
against the Canadian dollar. If you believe the German economy
will go into recession and drag the euro down with it, you would
click SELL, expecting the Canadian dollar to rise against the
euro.
AUD/CAD If, for example, you think that the Australian
economy is going to grow while the Canadian economy goes into
recession, you would click BUY, expecting the AUD to strengthen
against the Canadian dollar. If you believe the Australian economy
will go into recession, you would click SELL expecting the Canadian
dollar to rise against the AUD.
AUD/JPY If, for example, you think that the Australian economy is going to grow while the Japanese economy goes into recession, you would click BUY, expecting the AUD to strengthen against the yen. If you believe the Australian economy will go into recession due to falling commodity prices, you would click SELL, expecting the yen to rise against the AUD. NZD/JPY If, for example, you think that SARS and the situation in North Korea will cause Asian tourism and exports to fall, you would click BUY, expecting the yen to decrease in value over the NZD. If you believe that the factors that pushed the New Zealand economy up in 2002 are no longer in play, you would click SELL, expecting the NZD to weaken against the yen. CAD/JPY If, for example, you believe that the weakened U.S. dollar will cause Canadian exports to suffer, you would click SELL, expecting the yen to increase in value over the CAD. If you think the Japanese economy will remain weak due to lack of economic structural reform, you would click BUY, expecting the CAD to rise against the yen. |
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