Top 3 Currency Pairs to Watch for Day Traders

When trading forex, it's important to understand currency pairs. Each pair consists of two different currencies that are traded in pairs because buying or selling one currency involves automatically exchange with another. Its just like when purchasing foreign currency for a trip, you use your U.S. dollars to buy another currency. 

Source: BeoForex

In every pair, there's a base currency (the first one shown on the left) and a quote currency (the second one on the right). The pair's price represents the amount of the quote currency needed to buy one unit of the base currency. For example, in the EUR/USD pair, EUR is the base currency, and USD is the quote currency. A price of 1.1000 means that 1.10 U.S. dollars are needed to buy one euro, or one euro is worth 1.10 U.S. dollars.

We chose the EURUSD pair in the example above, as it is the most popular pair traded, and it offers good liquidity and tight spreads. It is popular due to the stability and strength of both the U.S. and Eurozone economies, making it a viable option for trading, along with other popular pairs such as USD/JPY & GBP/USD. Here’s a quick look at them.

1. EUR/USD

Our ranking of the most frequently traded forex pairs begins with the EUR/USD as it’s the most widely traded currency pair globally, reflecting the strength of the Eurozone and the United States economies. It accounts for 22.7% of market share as of 2022, offering high liquidity and tight spreads for traders. This pair has a negative correlation with the USD and Swiss franc USD/CHF and a positive correlation with GBP/USD due to the Euro's positive correlation with the British pound and Swiss franc.

2. USD/JPY

The USD/JPY pair is the next most actively traded pair with a 13.5% market share as of 2022, showing sensitivity to political sentiments between the United States and the Far East. It tends to have a positive correlation with the USD/CHF and USD/CAD pairs due to the U.S. dollar as the base currency. It responds to changes in interest rates by the Bank of Japan (BOJ) and their impact on the yen relative to the U.S. dollar.

3. GBP/USD

Trading the GBP/USD pair represents 9.5% of the forex market share as of 2022, indicating the strength of the British and U.S. economies. This pair exhibits a negative correlation with the USD/CHF and a positive correlation with the EUR/USD, reflecting the positive correlation between the British pound sterling, the Swiss franc, and the euro.

The U.S. dollar features in several top currency pairs because of the robust U.S. economy and the stability of the government that upholds the currency, that’s why top three chosen pairs in this article have the USD dollar pair traded against. Factors like trade dynamics, fluctuating interest rates, economic uncertainty, and geopolitical conflicts, such as war, can impact specific currencies and their pairs. Therefore, it is important to stay informed about current events and developments in order to make informed choices when entering into the forex market and selecting the most promising currency pairs to trade.