EUR/USD. The euro is the base currency here, and the U.S. dollar is the second currency. When looking at quotes of the EUR/USD, also called the “fiber,” you are seeing how many U.S. dollars you will need for each euro or conversely how many euro you will get per U.S. dollar. So if the quote is 1.2600 that means you need 1.26USD for each euro. An uptrend in this market reflects a strengthening euro and/or a weakening U.S. dollar. A downtrend reflects a strengthening U.S. dollar and/or weakening euro.
USD/JPY. The U.S. dollar is the base currency in this pair and the Japanese yen is the second currency. This pair is most often called the “dollar-yen.” When this pair is trending up, it is reflective of a stronger U.S. dollar and/or a weakening Japanese yen as higher prices reflect that the U.S. dollar gets you more yen. Lower prices indicate that the yen is stronger against the U.S. dollar or that the dollar is weaker against the yen.
Realize that one side of the pair can be enough to move prices higher or lower. The Japanese yen does not necessarily need to strengthen for the U.S. dollar to be weak against it . . . a simple move lower on the U.S. dollar would be enough. This is why data from each country involved in the pair is important and impactful. Additionally, because all the pairs have one thing in common—the U.S. dollar—the U.S. market and data coming from the United States is going to affect market psychology for these pairs.
GBP/USD. The British pound/U.S. dollar is called the “cable.” Traders seem to have a habit of giving everything a nickname. By now hopefully you are starting to see that the first currency in the pair is the base currency and when paired with the U.S. dollar, higher prices indicate base currency strength and/or U.S. dollar weakness.
USD/CHF. The U.S. dollar/Swiss franc is another pair where the U.S. dollar is the first or base currency. When the U.S. dollar is the base, then higher prices equate the U.S. dollar strength and/or second currency weakness, in this case the Swiss franc. When the “swissy” is trending higher, that means that each U.S. dollar is worth more and more Swiss francs. A lower trending swissy indicates Swiss franc strength and/or U.S. dollar weakness.
So as we round out the final two pairs, both of which are comm dolls, we can see that the USD/CAD (also known as the “Canada”) has the U.S. dollar as the base currency, and the AUD/USD has the U.S. dollar as the second currency. Since these currencies have a relationship with both the U.S. dollar and also a commodity, I refer to these as “split personality” pairs. There will be a triangular relationship. For example, the AUD/USD (Australian dollar/U.S. dollar) has of course a relationship to the U.S. dollar, but it also has a relationship to precious metals, namely gold.
We can add a seventh pair to this list with the NZD/USD (New Zealand dollar/U.S. dollar) pair as it moves very similarly to the “aussie” and has a comm doll relationship to the same commodities as the aussie. Additionally you will see a relationship to the Continuous Commodity Index. Frankly, it is almost impossible to look at the forex market without considering secondary cues and confirmation from the commodity futures market. I certainly use these to my advantage, and I will teach you to do the same a little bit later. I consider myself lucky to have started my trading career in the futures market, and I encourage all forex traders to use this connection, since it is one that when correctly applied will give you more understanding of price action in the most widely traded forex pairs.
USD/JPY. The U.S. dollar is the base currency in this pair and the Japanese yen is the second currency. This pair is most often called the “dollar-yen.” When this pair is trending up, it is reflective of a stronger U.S. dollar and/or a weakening Japanese yen as higher prices reflect that the U.S. dollar gets you more yen. Lower prices indicate that the yen is stronger against the U.S. dollar or that the dollar is weaker against the yen.
Realize that one side of the pair can be enough to move prices higher or lower. The Japanese yen does not necessarily need to strengthen for the U.S. dollar to be weak against it . . . a simple move lower on the U.S. dollar would be enough. This is why data from each country involved in the pair is important and impactful. Additionally, because all the pairs have one thing in common—the U.S. dollar—the U.S. market and data coming from the United States is going to affect market psychology for these pairs.
GBP/USD. The British pound/U.S. dollar is called the “cable.” Traders seem to have a habit of giving everything a nickname. By now hopefully you are starting to see that the first currency in the pair is the base currency and when paired with the U.S. dollar, higher prices indicate base currency strength and/or U.S. dollar weakness.
USD/CHF. The U.S. dollar/Swiss franc is another pair where the U.S. dollar is the first or base currency. When the U.S. dollar is the base, then higher prices equate the U.S. dollar strength and/or second currency weakness, in this case the Swiss franc. When the “swissy” is trending higher, that means that each U.S. dollar is worth more and more Swiss francs. A lower trending swissy indicates Swiss franc strength and/or U.S. dollar weakness.
So as we round out the final two pairs, both of which are comm dolls, we can see that the USD/CAD (also known as the “Canada”) has the U.S. dollar as the base currency, and the AUD/USD has the U.S. dollar as the second currency. Since these currencies have a relationship with both the U.S. dollar and also a commodity, I refer to these as “split personality” pairs. There will be a triangular relationship. For example, the AUD/USD (Australian dollar/U.S. dollar) has of course a relationship to the U.S. dollar, but it also has a relationship to precious metals, namely gold.
We can add a seventh pair to this list with the NZD/USD (New Zealand dollar/U.S. dollar) pair as it moves very similarly to the “aussie” and has a comm doll relationship to the same commodities as the aussie. Additionally you will see a relationship to the Continuous Commodity Index. Frankly, it is almost impossible to look at the forex market without considering secondary cues and confirmation from the commodity futures market. I certainly use these to my advantage, and I will teach you to do the same a little bit later. I consider myself lucky to have started my trading career in the futures market, and I encourage all forex traders to use this connection, since it is one that when correctly applied will give you more understanding of price action in the most widely traded forex pairs.
