Currency Pairs

In the foreign exchange market, currency trading is performed in currency pairs, such as USD/JPY. Consequently, all trades result in the simultaneous buying of one currency and the selling of another. The base currency is the "basis" for the purchase or the sale. It is useful to consider the currency pair as an instrument, such as an equity or security, which can be bought or sold.

EUR/USD

If, for example, you think the US equity markets, such as the NYSE and the Nasdaq will continue to fall and that will hurt the US dollar, you purchase Euros expecting them to go up against the USD. However, you may also sell EUR/USD and buy US Dollars expecting them to climb against the Euro.

USD/JPY

If you think that the Japanese Yen will be weakened somehow by lower than expected market expectations, you would buy USD/JPY, expecting the US Dollar to increase in value against the Yen. If you think that Japanese investors are pulling money out of the US economy and repatriating funds back to Japan you would sell USD/JPY in expectation of the Yen strengthening against the US Dollar as Japanese investors sell their assets and convert their dollars to Yen.

GBP/USD

If you believe the British Economy will continue to be the leading economy amongst the G7 nations in terms of growth thus keeping the Pound afloat, you would buy GBP/USD, expecting the British Pound to strengthen against the US Dollar. If you believe the British are about to commit themselves to adopting the Euro, you would sell GBP/USD, expecting the Pound to weaken against the Dollar as the British devalue their currency in anticipation of merging with the Euro.

USD/CHF

If you have a feeling the Swiss Franc may be overvalued and that the US economy will recover quickly, you would buy USD/CHF, expecting the US Dollar to strengthen against the Swiss Franc. If you believe that due to instability in the middle east and due to the bearish US financial markets the Dollar will continue to weaken, you would sell USD/CHF, expecting the Swiss Franc to strengthen against the Dollar.

EUR/CHF

If you think the Swiss government wishes to devalue the currency to help exports in Europe, you would buy EUR/CHF, expecting the Euro to increase in value against the Swiss Franc. If inflation started taking off in Germany and France, you would sell EUR/CHF expecting the Swiss Franc to increase in value against a devalued Euro.

AUD/USD

If you think that precious metal prices are going to rise dramatically thus benefiting the AUD, you would buy AUD/USD, expecting the Aussie to strengthen against the US Dollar due to Australia being a leading exporter of many commodities. If you believe that Australia is heading into recession, you would sell AUD/USD, expecting the US Dollar to strengthen against the AUD.

USD/CAD

If you think that the US economy is going to rebound while the Canadian economy goes into recession, you would buy USD/CAD, expecting the US Dollar to strengthen against the Canadian Dollar. If you believe the Canadian Dollar is fundamentally undervalued and will strengthen against the US Dollar, you would sell USD/CAD, expecting the CAD to rise against the US Dollar.

EUR/GBP

If you believe the British are about to commit themselves to adopting the Euro, you would purchase EUR/GBP, 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 sell EUR/GBP, expecting the British Pound to rise in value against the Euro.

EUR/JPY

If you believe that the Japanese banking crisis will continue to get worse, you would purchase EUR/JPY 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 sell EUR/JPY, expecting the Euro to drop in value against the Yen.

GBP/JPY

If you believe that the BOE is going to raise interest rates, you would buy GBP/JPY, 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 sell GBP/JPY, expecting the Yen to increase against the British Pound.

GBP/CHF

If you believe that the Bank of England is going to raise interest rates, you would buy GBP/CHF, 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 sell GBP/CHF, expecting the Pound to weaken against the CHF as the British devalue their currency in anticipation of merging with the Euro.

AUD/JPY

If you think that the Australian economy is going to grow while the Japanese economy goes into recession, you would buy AUD/JPY, 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 sell AUD/JPY, expecting the Yen to rise against the AUD.