It is hard to overestimate the importance of volatility. Traders need to remember that it is used in order to measure how prices fluctuate over a certain period of time – usually tied to how rapidly a market value changes in the world of forex.
You need to think, “Are you willing to trade volatile currency pairs, or are you more interested in less volatile currency pairs?”
Are you familiar with the least volatile currency pairs?
The least volatile currency pairs are CHF pairs. For instance, EUR/CHF and USD/CHF. Do you know what makes the Swiss franc so powerful?
It is worth noting that the Swiss franc is a safe haven currency. As a result, it is quite hard to trade CHF pairs.
Let’s gather more information about the least volatile currency pairs.
We can say that USD/CHF, EUR/CHF, AUD/CHF, USD/EUR, as well as EUR/CAD currency pairs are the least volatile currency pairs. However, a less volatile currency pair could become more volatile in the future.
There are many currencies in the world. However, not all of them are equally important due to various reasons. To make a long story short, the currencies mentioned above are more important than the currencies of many other countries.
Inflation, economic conditions, and other factors affect all currencies. However, there is a huge difference in how the above-mentioned factors affect the US dollar, for example, and how they affect other countries. So, you need to be careful when it comes to various currencies.
As stated above, there are numerous currencies. However, many novice traders prefer to focus on major currency pairs.
It is quite common for new traders to start moving USD/EUR currency pairs because of their familiarity, safety, etc. However, it is better not to rely only on the least volatile currency pairs. Why? Let’s find out!
Without a doubt, the USD/EUR currency pair is a good option. However, a lack of volatility isn’t always good for you.
Remember, a lack of volatility means that there is a lot less opportunity to make money on major market moves. As you can see, you can’t earn much without it. So, the least volatile currency pairs also have their disadvantages.
You should also pay attention to the volatile currency pairs. For example, one good option is the AUD/JPY currency pair. It is worth noting that the currency pair mentioned above was the most volatile currency pair in 2021.
We can say that it is easier to trade less volatile currency pairs. The risk of losing money is lower in the case of such currency pairs.
So, if you aren’t ready to risk your financial stability, it makes sense to focus on less volatile currency pairs.
Are you familiar with forex correlation pairs? These currencies have either a positive or negative relationship with one another. For example, the USD/EUR pair belong to the ranks of correlation pairs.
Correlation pairs might not be the “sexiest” forex trades to make. Still, novice traders who are just getting their feet wet – or forex traders that don’t have a tremendous risk tolerance – will find these correlated pairs much easier to make compared to non-correlated trades.
Let’s take a look at commodity currencies.
The three commodity currencies that the vast majority of forex traders will include on a list of the ‘majors’ are:
In the case of the AUD/USD currency pair, it is vital to monitor the value of coal as well as iron ore on the commodities market. Moreover, it makes sense to keep an eye on the value of other metals, such as copper.
This is because any fluctuation in the value of coal, iron ore, and other commodities will likely cause a reciprocal fluctuation in the value of the Australian dollar relative to the US dollar or the greenback, as many people call it.
As in the case of the other commodity currencies, the value of the US currency significantly affects the pricing of the AUD/USD pair.
Canada is one of the main oil exporters. Unsurprisingly, the value of the local currency is largely tied to the price of black gold, as some people call oil.
OPEC’s decisions have the potential to affect the value of the Canadian dollar. Moreover, since oil is priced in US dollars, any decline in the value of black gold will likely see a reciprocal strengthening of the US currency.
As in the case of the AUD/USD pair, this means that Canadian oil exporters will receive less money for their oil.
We shouldn’t forget about the NZD/USD pair. Agriculture plays an important role in New Zealand. Unsurprisingly, it has a serious impact on the New Zealand dollar. Apart from agriculture, international trade and tourism seriously affect the NZD/USD pair.
It is hard to overestimate the role of central banks. For example, the Reserve Bank of New Zealand sets interest rates that can have a serious impact on the above-mentioned currency pair, especially when they don’t line up with what the US Federal Reserve is doing.
So, it is vital to monitor the central banks in order not to miss any announcements.
The forex market is the largest financial market in the world. We should also mention one important detail about the forex market.
As opposed to the stock market, where you can make trades and then sort of ignore your stock for a long period of time, the largest financial market in the world demands that you keep your finger on the pulse as soon as you have locked in positions.
Let’s get back to the least volatile currency pairs. The Swiss franc currency pairs are the least volatile of all currency pairs. Do you know why?
The number of unemployed people is low. Moreover, people from all over the world trust Swiss banks.
As a reminder, Switzerland has low public debt. Moreover, the consumer confidence rate in Switzerland is quite high.
It is worth mentioning that the euro – specifically the EUR/CHF pair – is the next least volatile currency pair. The above-mentioned currency stays stable because the euro is pegged to a basket of currencies. The euro is one of the most stable currencies.
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