Foreign exchange is always executed in currency pairs, such as Euro/U.S.Dollar (EUR/USD). Currency pair is an instrument to be bought or sold, as all the trades are the purchase of one kind of currency with another. The first currency in the pair is the base currency, which provides a baseline for the sale or purchase. In any case, you are buying either the Euro or the U.S. Dollar.
Here are some scenarios that explain these pairs and how to think in the context of the basis currency:
EUR/USD
BUY if the U.S. securities markets are to continue in a bear market and the Euro is going up against the U.S. Dollar. SELL if you believe Wall Street is to recover and the U.S. Dollar to climb against the Euro.
USD/JPY
BUY when you expect the Yen is about to be weakened in support of Japanese trade. SELL when Japanese equity is leaving the U.S. financial markets to make stronger investments in Japan.
GBP/USD
BUY if growth in the U.K. continues to lead G7 nations. SELL if you expect the British to be about to adopt the Euro, and the Pound to weaken against the U.S. Dollar as it is devalued in anticipation of the merger.
USD/CHF
BUY the Swiss Franc if you think that the influence of international instability is overvalued. SELL if you think that conservative investors will be seeking out traditional havens such as Switzerland to be a hedge against weakness in the U.S. economy.
EUR/CHF
BUY if you believe the Swiss government to devalue the currency to accelerate exports to Europe. SELL if inflation takes place in Germany and France, increasing the value of the Swiss Franc against the Euro.
AUD/USD
BUY when world commodity prices are going to boost the commodity-based export market in Australia. SELL when the Australian economy shows signs of recession and unfavorable trade imbalances are emerging.
USD/CAD
BUY if the US economy is going to rebound at a faster rate than the economy of Canada. SELL if the Canadian Dollar is considerably undervalued against the U.S. Dollar.
NZD/USD
BUY when you think the notoriety of the “Lord of the Rings” films will increase income from tourism. SELL when you expect that international uncertainties will continue depressing the tourist industry.
EUR/GBP
BUY if you believe the British are about to adopt the Euro, and the Pound to weaken as it is devalued in anticipation of the merger. SELL if you expect that the U.K. economy will grow faster than the European Union as a whole.
EUR/JPY
BUY if the Japanese banking crisis is going to worsen. SELL if you believe that Europe goes into recession, anticipating the Euro to fall against the Yen.
GBP/JPY
BUY if the Bank of England is expected to raise interest rates. SELL if you believe that the Nikkei index is about to outperform the FTSE.
CHF/JPY
BUY when you are concerned that international instability will cause an oil price spike, affecting the import-dependent Japanese economy. SELL when you expect regional conflicts will result in lower oil prices, making Japanese markets more attractive than the conservative Swiss Franc.
GBP/CHF
BUY if you think that the Bank of England is going to raise rates. SELL if you believe the British are about adopt the Euro, anticipating a weaker Pound against the Swiss Franc as it is devalued prior to the merger.
EUR/AUD
BUY when Australia is heading towards recession. SELL when you expect international commodity prices to rise dramatically.
