How to Choose the Best Currency Pairs for Forex Trading

Category: Forex Market Analysis and Signals | Thursday, June 19th, 2008

The best currency pair to start trading is a currency pair that has a small spread and sharp and strong signals. So EUR-USD is the best. Most brokers charge 2 pips when you buy EUR-USD and recently I have seen some brokers that charge even less than one pip.

GBP-USD is so similar to EUR-USD but it has a higher spread and greater volatility. You can try the GBP-USD only after few months that you have been working with EUR-USD but if you are happy and comfortable with EUR-USD, forget about GBP-USD.

USD-JPY and USD-CAD are completely different from EUR-USD and GBP-USD because they are dependent on two different countries, Japan and Canada with different economy and situation from Europe, GB and USA.

Canada is an oil supplier and the price of oil has a direct impact on the value of Canadian dollar. So the price of oil can work as a leading indicator for USD-CAD. When the price of oil goes up the USD-CAD goes down because the value of Canadian dollar goes up.

On the other hand, Japan is an oil consumer country and so when the price of oil goes up they have to pay more and so they have to increase the price of their product. So there will be less demand for their products and the value of JPY will go down. When the value of JPY goes down, the USD-JPY can go up but in this case, as the value of USD has been going down too, it will be a little harder to use the oil price to predict the direction of USD-JPY.

CAD-JPY is the currency pair which has a stronger relation with the oil price because Canada is an oil supplier and Japan is an oil consumer. So when the oil price goes up CAD-JPY goes down strongly and when visa versa. Of course countries can control the value of their currency through different ways and methods like increasing and decreasing their interest rate. It means a country like Japan doesn’t let its currency value goes down very much because of the oil price.

AUD-USD has a good relation with the gold price. When the gold price goes up the AUD-USD goes up too. So if you follow the gold price and also the economy of USA, you can predict the direction of AUD-USD.

Read more here: correlated (cross) currency pairs and currency pairs explained.

Fundamentals: No important news for Friday

Ok! Lets check the best currency pairs.

EUR-USD:

12:39am GMT

We have to take a look at the weekly chart today because it gives a lot of good information. All the last candlesticks are right above the Bollinger Middle Band which means the price insists to break down the middle band and go down. On the other hand the 161.80% level which is working as a resistance is so close to the middle band. The RSI shows the down side. So we should expect the price to break down the Bollinger middle band but we don’t know when. RSI has already broken its support.

The daily chart has been bullish for the past a few days but it couldn’t break up the Bollinger Middle Band yesterday. RSI and also price have formed lower lows which reflects Bearish pressure. There is a strong support at 1.5326 (the 161.50% level). So the daily shows indecision because the price between Bollinger Middle Band and 161.80% level but in general there is more Bearish pressure.

In the 4hrs chart, the RSI broke down the support and then retested it as resistance and now is heading to the down side. The price has broken down the Bollinger Middle band and retested it as resistance but failed to break it up. Currently the price is trapped between the support and Bollinger Middle Band.

The one hour shows that the price has broken down the support and also RSI shows the downside. So in general, the price has a stronger tendency to go down.

GBP-JPY:

1:06 am GMT

The price couldn’t break the support and kept on going up.

The daily is strongly Bullish:

The 4hrs has broken the 161.80% resistance:

In one hour, the RSI broke down the support but it was a false breakdown because the price didn’t follow it.

If the price breaks down the small thick line while RSI has already broken down its support, we can take a short position. Otherwise we have to wait.



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Further Reading:

 
7 Comments:
post a comment
Comment by Knut
2008-06-19 23:54:17

Hi Vahid,
thanks for your posts, like always very informative and I think very good to understand, also for newbees.
Keep on doing this good work.

Regards
Knut

Reply to this comment
 
Comment by paul
2008-06-20 06:23:30

I really look forward to read your ‘wise words’ and your analysis every morning. You have a great way of putting across the information.
Many thanks
Paul

Reply to this comment
 
Comment by aini
2008-07-19 23:22:58

Yes, youe explaination very informative. How about giving us the latest weekly info i.e. between 14th-18th July 2008?

Reply to this comment
 
Comment by mike maclean
2008-09-29 03:31:30

Good day sir,
I have gained a lot from your article and will like to ask you a question if you dont mind,i wil like to start trading forex but i am not sure of the BROKER to use but some one told me to use FXCAST please do you recomend it.
thankyou very much.

MIKE MACLEAN.

Reply to this comment
 
Comment by Dr.Paul Martin
2009-04-11 15:09:49

Dear Vahid,congratulation for your great website with all that info about Forex trading.I want to subscribe to your mon thly advisory.My Question: Can your signals,as they are on much longer timeframe help me in my Trading 5 and 15 M charts mainly EU/US?.Thank you for your answer,Paul Martin,Deggendorf Germany

Reply to this comment
Comment by Vahid
2009-04-11 15:52:34

Dear Dr. Martin,
Hi

Thanks for your message and comment and thanks for your congratulations.

Unfortunately our analysis and signals don’t cover times frames like 15min and 5min, however, we are sure that you will enjoy taking good positions based on the 4hrs chart and making higher amount of profit with less amount of risk.

Hope this helps. If you have any more questions please don’t hesitate to ask.

Best regards,
Vahid

Reply to this comment
 
 
Comment by Abraham
2010-04-11 20:30:11

the comments on usdcad and cadjpy vs the price of oil are certainly not validated by recent data. the y move in tandem!

Guess its time revalidate the suggestions..incl that of eurusd being the best pair to start trading with.

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