Forex Tutorial: Currency Pairs and Forex Quotes
If you are new to the forex market, you might find forex quotes confusing. Do not allow yourself to be overwhelmed with forex quotes. In fact, reading forex quotes can be quite easy.
In reading forex quotes or currency pairs, there are two important things that you must keep in mind. First is that the currency being quoted first is what we refer to as the base currency. Second is that the value of base currency always equals to 1.
The centerpiece or focus of the forex market is the US Dollar. It is also often quoted as the base currency for a lot of pairs. A currency pair that has the US Dollar as the base currency is what we call “major”. Examples of major currency pairs are USD/JPY, USD/CAD, and USD/CHF. In major currency pairs, quoted currencies are expressed as the US Dollar, specifically, one (1) US Dollar for every, or a fraction of the, unit of the second currency quoted in the pair.
As an example, let us take the US Dollar and the Swiss Franc. In the currency pair USD/CHF, the base currency is the US Dollar. In the quote USD/CHF = 1.0806, one unit of the US Dollar is equivalent to 1.0806 units of Swiss Francs.
If a currency goes up, you must take note of the base currency. In the aforementioned pair, the US Dollar is the base currency. If the quote goes up, it simply means the value of the US Dollar has increased compared with the value of the Swiss Franc. If the quote goes down, then one can easily conclude that the value of the US Dollar has depreciated to a certain degree.
There are cases when the US Dollar is not the base currency. We often see the US Dollar as the quoted currency when it is paired with the Australian Dollar (AUD), British Pound (GBP), and Euro (EUR). Let us take the AUD/USD currency pair quoted at 0.8044. This shows that one unit of Australian Dollar is equivalent to 0.8044 or less than one unit of US Dollar. One can conclude that the Australian Dollar is weaker than the US Dollar. If the quote goes up, then it means that the US Dollar has weakened against the Australian Dollar.
Currency pairs do not always involve the US Dollar. These currency pairs are referred to as cross currencies. Examples of which are EUR/AUD, EUR/JPY, CHF/JPY, and EUR/SGD. Let us take the currency EUR/SGD pair quoted at 2.0373. This shows that one unit of Euro is equivalent to more than two units of Singapore Dollar or 2.0373 Singapore dollars.