Trading is all about information. The more of it you have, the more informed your decision is on where the market is going to move and thus the higher the likelihood that your trade will be a successful one.
It’s worth taking a bit of time to go over the main forex country profiles so you can understand how they may react to news and events that occur while you are trading.
Here is a quick overview of the main currencies nations/regions and what to look out for.
Central Bank – The Bank of England
Currency – Great British Pound (GBP)
London is the biggest Forex trading centre in the world and accounts for around 35% of the worldwide trading volume – impressive stuff. That suggests that the market will be most active during UK trading hours, which are between 08:00-17:00 GMT.
One thing to keep an eye on is the interest rates set by the Bank of England. As London is such a huge global centre for trading, these rate fluctuations and monetary policy changes can send huge shockwaves through the whole market.
United States of America
Central Bank – The Federal Reserve
Currency – U.S Dollar (USD)
The USD is part of an estimated 87% of all currency trades.
That is truly staggering when you consider that the foreign exchange market accounts for $5 trillion of trading volume, per day.
New York is the main trading centre in the USA and is the second-largest in the world after London. It is for this reason that you should always pay close attention to the New York session and be aware of what is going on in the US news – if you are trading the US Dollar.
Aside from looking for interest rate changes and monetary policy updates, one thing to pay attention to is the New York Stock Exchange (NYSE). This is heavily correlated to the price of the US Dollar.
Central Bank – European Central Bank
Currency – Euro (EUR)
At the time of writing, the Euro is the official currency for 19 out of 28 EU member countries. This makes the Euro one of the biggest and most widely used currencies in the world.
Even now there are still many countries seeking membership to the EU and wanting to use the Euro as their main currency. One of the main benefits of the Euro is that the European Central Bank (ECB) must balance the needs of all of the member nations.
This avoids problems arising from the individual political instability of nations and makes it less likely that the Euro will be manipulated or deliberately inflated for the gain of one particular country.
It is for this reason that the Euro is typically less volatile than some currencies, but not always.
Central Bank – Swiss National Bank
Currency – Swiss Franc (CHF)
Despite it being located right in the middle of Europe, Switzerland is not a part of the European Union. A country notorious for its neutrality, Switzerland is one of the richest countries in the world.
As you would expect, their main trade is with their fellow European countries, namely Germany, France, and the U.K. They also do considerable trade with the USA.
Watch for the price of gold – a quarter of Switzerland’s cash is backed with gold reserves, so the prices are heavily correlated with the price of gold (XAU/USD).
Central Bank – Bank of Canada
Currency – Canadian Dollar (CAD)
Canada is reported to have the 10th largest economy in the world, which is not bad for a country of 38 million people. As you would expect, the US and Canada have strong ties, with Canada exporting 70% of their goods to their neighbour.
Canada is a massive exporter of crude oil, so as you would expect, the CAD’s movements is heavily tied to any price changes or events in the crude oil industry. Keep an eye on this, especially if you are trading USD/CAD.
Central Bank – Reserve Bank of Australia
Currency – Australian Dollar (AUD)
The AUD offers one of the highest interest rates out of all the main currencies. It is for this reason than the AUD is often used as part of currency carry trades, which is where traders try to take advantage of interest rate differences between currencies.
The main premise of a currency carry trade is to sell a currency with a low-interest rate and then use those same funds to buy a currency, such as the AUD, that has a higher interest rate. This is usually done with leverage.
The AUD is a typically stable currency, with the central bank aiming to keep inflation at 2%. The AUD is heavily tied to gold as it is one of the biggest exporters of gold in the world.
Central Bank – Bank of Japan
Currency – Japanese Yen (JPY)
A true powerhouse, Japan is ranked at number three out of the world’s largest economies.
As the Yen is known to offer typically low-interest rates, it is often used in currency carry trades. This makes it especially important to pay attention to the Bank of Japan’s monetary policies and interest rate updates.
There is plenty of volumes traded on the Yen, so you will never be short of liquidity. In fact, the USD/JPY is the 2nd most traded currency pair in the world.
It would be best to keep in mind how China’s economy is performing as China is one of Japan’s largest trading partners.