Over the years I have traded countless currency pairs... On a daily basis, I review most Australian Dollar, Canadian Dollar, Swiss Franc, Euro, Japanese Yen, Great British Pound, New Zealand Dollar, and US Dollar pairs. I also occasionally trade some Mexican Peso, South African Rand, Norwegian Krona, Swedish Krona, and Hungarian Forint pairs! You name it, I have likely traded it at some point over the last decade!
Something I have learned over the years is that currencies behave differently. Price action IS universal but some currencies have their own "characteristics" and "personalities". Knowing how different currencies and currency pairs behave can obviously give you a trading advantage.
In this post, I will share some insights into how different currencies behave and what to expect when trading them...
Currency Behaviour - it starts with price action!
Price action is a reliable and logical way to analyse price charts. It forms trends, consolidations, and patterns on all price charts of all currency pairs and all time-frames.
Some currencies behave differently to others though. If you are aware of these differences, you can obviously make better trading decisions, especially when it comes to watch-lists and risk management.
How Currencies Behave differently...
The Australian Dollar (AUD)
My biggest returns over the last decade of Forex trading have been on Australian Dollar (AUD) pairs. Especially on AUDCAD, AUDJPY and EURAUD pairs.
I believe this is mainly due to the fact that price action on AUD pairs is reliable and precise.
Australian Dollar pairs often respect technical indicators - as well as price action - and tend not to have unexpected volatility. 95% of my analysis and trading decisions are price action based. I also do use indictors (moving averages and the RSI), making the AUD a perfect currency to trade.
If you are based in the UK or Europe, you will need to keep in mind that most economic news events for Australia will happen overnight UK or European hours, meaning that AUD pairs can experience volatility and market movement while you are sleeping.
Something to note; AUDNZD can be a nightmare to trade due to the correlation between the Australian Dollar and New Zealand Dollar pairs. This pair can be choppy and has often been very unreliable for price action trading on anything lower than the 4 hour time-frame.
Top AUD Pair Tips; great for price action, steady pairs, big moves can happen overnight (UK & European time)
The Canadian Dollar (CAD)
The CAD is another currency with clear and reliable price action - AUDCAD is actually one of my favourite pairs to trade, due to both the AUD and CAD being technically reliable!
Canadian Dollar pairs can form some big swings, creating opportunities to make strong returns.
Most currencies are positively correlated with other currencies - the GBP and the EUR, the AUD and the NZD, etc - but the Canadian Dollar is positively correlated to OIL. Meaning that it is wise to keep an eye on OIL related news and price movements on the OIL markets.
From my experience, the Canadian Dollar seems to be more reactive to it's news events than other currencies, especially news that relates to trade balance, rates and employment data. This could be due to the fact that CAD news is usually released during both European and American trading hours, meaning there is more money moving in the markets.
My top CAD pairs are the CADJPY, CADCHF and AUDCAD.
Top tips; reliable price action, can be volatile, positively correlated to oil
The Swiss Franc (CHF) and Japanese Yen (JPY)
I have paired these two currencies together as they can behave similarly.
These pairs have two main characteristics that should not be ignored...
1. They are risk-on, risk-off currencies. This means that when there is economic uncertainty (risk on), the CHF and JPY can strengthen due to traders using these currencies as a safe-haven for their money (in more recent years, the USD has actually been used as a safe-haven).
When global economies perform well, money can move from these currencies (risk off), causing them to weaken. Because of this, Swiss Franc and Yen pairs often react to market news, even if the news is not directly related to Switzerland or Japan. For example, a US GDP figure could move CADCHF or AUDJPY, due to risk on or risk off principles.
2. As both pairs can be heavily news driven, both pairs can be very directional - price can just keep dropping or climbing, despite any signals of being overbought or oversold. I have seen rallies and drops that totally ignore support and resistance and any overbought or oversold RSI. It is not uncommon to have 10 + candles that all close in the same direction. This can cause some issues for trend reversal traders.
Top tips; can be very directional, can react to global news events
The Euro (EUR)
The Euro is steady. Price movements are generally fairly slow when compared to other currencies. A new trader should always consider trading Euro pairs first. This does not mean that Euro pairs do not become volatile, because they do.
EUR pairs such as EURAUD and EURCAD can provide reliable technical analysis. I find the EURUSD one of the most unreliable pairs for technical analysis, which is ironic, seeing that it is the most traded currency pair.
The EUR is positively correlated with Pound Sterling, so EURGBP can provide some odd price action at times. The EUR is also correlated with the CHF, meaning that this pair can be choppy - EURCHF is one of my least favourite pairs to trade!
Top tips; great for beginners, can be slower than other currencies, not the most reliable for price action
Great British Pound / Sterling (GBP)
I like to compare the Pound to the Euro but with a bit more kick. Daily movements are usually more volatile and market movements can be stronger. Pairs like GBPCHF, GBPJPY and GBPNZD should be left to traders that are more experienced as they can be very volatile.
The GBP pairs can provide a wide range of trading opportunities for a trader that is based in Europe or a late night trader in Australasia.
Top tips; clear price action, major swings, wide range of trading opportunities
Krona Pairs (DKK, NOK, SEK)
If you want to give yourself a heart attack or an early grave, the Krona pairs may be what you are looking for. Danish Krona, Norwegian Krona and Swedish Krona pairs can move thousands of pips per day and are often very directional i.e they will rally or fall for consecutive days.
Price action is often respected but markets can be choppy and very jumpy. These pairs react strongly to news events.
Spreads are generally very wide for these pairs.
Top tips; trade with small position sizes, use wider stop losses, can provide high-risk high-reward trades
US Dollar (USD)
The US Dollar is a great all-rounder. It has clear price action, respects indicators, can have big swings and is often active.
US Dollar pairs seem to range more than other pairs (on both lower and higher time-frames). If you are a range-bound trader, these pairs could provide great trading opportunities.
Just like the CHF and JPY, the USD can be used as a safe-haven currency.
Top tips; great all rounder, Euro and US Dollar pairs would provide a great foundation for newer traders
Now watch this...
How do I trade Forex? I trade Forex using price action. You can learn my strategies on this page.
Contact me? Feel free to follow me on Facebook or send me an email - firstname.lastname@example.org