Identifying The Strongest To Weakest Forex Pairs by Michael Burke
Which is the strongest and which is the weakest? Here’s a straightforward concept that can help you track forex market dynamics and cross-currency relationships.
At some point in the life of every forex trader, the idea of trying to determine which currency is stronger or weaker than all the others will come up. The thinking goes like this: If I know which currency is the strongest and which one is the weakest, then the resulting combination pair should have the greatest trend potential. Although this is a straightforward concept, it turns out that there is much more that we can derive from this analysis in tracking forex market dynamics and cross-currency relationships.
In this article, I’ll discuss the modeling and analysis of a forex pair performance strength score, focusing only on the eight major (that is, most widely traded) currencies: the US dollar, Japanese yen, euro, Swiss franc, British pound, Canadian dollar, Australian dollar, and New Zealand dollar. These eight underlying currencies represent 28 unique tradable cash forex pairs; any one underlying currency will have seven unique cash pairs that match up with the seven other underlying currencies.
FOREX PAIR SYMBOLOGY
Each cash forex symbol comprises two underlying currencies. The base currency in a forex pair symbol is the first symbol noted. For example, in the EURUSD pair, EUR is the base currency while the second symbol, in this case USD, is the quote currency. The base symbol is the currency you are buying or selling and the quote symbol is the currency in which you realize the profit or loss of a trade.