The characteristics of the main trading currencies in the foreign exchange market

dollar

The United States has the largest economy in the world and the largest GDP in the world. 90% of foreign exchange currency pairs have the dollar. All emerging markets link their currencies to the dollar. The dollar is quite sensitive to changes in the US stock and bond markets. Therefore, it is very important to consider the attitude of the US exchange rate towards the dollar from the perspective of US self-interest.

For example, the "Plaza Accord" in 1985, when the United States faced a record large trade deficit caused by the high exchange rate of the dollar, and Japanese investors held a large amount of dollar assets. In September 1985, the United States pressured Japan, Germany, France, and the United Kingdom to reach an agreement for the five countries to jointly intervene in the market, and countries sold dollars, causing the dollar to decline in an orderly manner to solve the huge trade deficit of the United States. Eventually, the dollar continued to depreciate sharply, and the dollar depreciated by 50% against the yen in less than three years. Japanese investors who held dollar assets suffered heavy losses, and the sharp rise in the yen exchange rate eventually pushed the Japanese economy into a recession that lasted for more than a decade. Japan's challenge to the hegemony of the US world economy also failed.

In addition, the dollar fell sharply after October 2004, and the euro reached a record high of 1.3670. During this period, the European side repeatedly called for intervention in the US exchange rate to avoid the euro exchange rate being too high and causing economic growth in the euro area to suffer. But the US side only verbally stated that it adheres to the strong dollar policy, but is unwilling to jointly intervene in the market, because the depreciation of the dollar is beneficial to the reduction of the US trade deficit. As a result, the market has increased confidence in shorting the dollar, and the dollar has fallen sharply before the end of the year. From the above two examples, it can be seen how important it is for investors to understand the true intentions of the US side on the exchange rate trend.

The domestic financial capital markets in the United States are developed and closely related to markets around the world, and the domestic markets are also closely related. Because funds can flow between the foreign exchange market, stock market and bond market at any time for profit purposes, and can also flow from home to abroad at any time, the impact of this flow of funds on the foreign exchange market is self-evident. For example, the rise and fall of the yield of US Treasury bonds has a great impact on the exchange rate of the US dollar, especially when the focus of the foreign exchange market is on the outlook for US interest rates. Because Treasury bonds are sensitive to changes in interest rates, investors' expectations for changes in interest rate prospects are keenly reflected in the bond market. If the yield of Treasury bonds rises, it will attract capital inflows, and the inflow of funds will support the rise of the exchange rate, and vice versa. Therefore, investors can judge the market's expectations for interest rate prospects from the rise and fall of government bond yields, and make decisions on foreign exchange market investment.

Euro

The euro accounts for 57.6% of the weight of the US dollar index, the largest proportion, so the euro can basically be regarded as the counterpart currency of the US dollar, and investors can refer to the euro to judge the strength of the US dollar. The proportion of the euro is also reflected in its currency characteristics and trends. Because of its large proportion and trading volume, the euro is the most stable currency among major non-US currencies. Like large-cap stocks in the stock market, it often drives European currencies and other non-US currencies and plays a leading role. Therefore, it is quite advantageous for beginners to enter the market and choose the euro as the main operating currency.

At the same time, because the euro has been on the market for only a few years, the historical trend is quite in line with technical analysis, and the trend is stable, the trading volume is large, it is not easy to be manipulated, and there are few human factors. Therefore, from the perspective of technical analysis alone, the grasp of its longer-term trend is more effective. Except for some special market conditions and trading hours, such as the end of 2004, the euro made a breakthrough to a new record high in the holiday atmosphere and light trading conditions of Christmas and New Year's Day. Subsequent market conditions showed that this was a false breakthrough, which was a cunning means for some market forces to ship. Generally speaking, the reliability of breaking through important points, trend lines and patterns is relatively strong.

The government and the central bank of a country will intervene in the currency in accordance with their interests and intentions, and the difference lies in their respective capabilities. As mentioned above, the US side has a strong ability to intervene in the currency due to its national strength and influence, as well as its political structure. It can be said that basically, the long-term trend of the US dollar can follow the intentions of the United States, while the political structure of the euro area is relatively scattered, and there are many differences of interest and corresponding differences of opinion. Therefore, the ability of the European Union to influence the exchange rate of the euro is also greatly reduced, and it cannot be compared with the US side. When the European and American sides have a game on the exchange rate due to differences in interests, there is no doubt that the US side has the upper hand. As mentioned earlier, during the rise of the euro in 2004, the verbal intervention of the European Union can only have an impact on the short-term trend of the euro, and there is no actual intervention in the market, because the European side understands that without the cooperation of the United States, the effect is not satisfactory.

Australian dollar

The Australian dollar is a typical commodity currency. Commodity currencies are characterized by high interest rates, a high proportion of exports to GDP, a major producer and exporter of certain important primary products, and currency exchange rates that move in the same direction as certain commodities (or gold prices). Australia has an absolute advantage in the international trade of coal, iron ore, copper, aluminum, wool and other industrial products and cotton textiles. Therefore, the rise in the price of these commodities has a great positive impact on the Australian dollar. In addition, although Australia is not an important producer and exporter of gold, the positive correlation between the Australian dollar and gold prices is more obvious, as well as the price of oil. For example, in recent years, the international commodity futures index, which represents the world's major commodity prices, has been on the rise. In particular, the prices of gold and oil rose sharply in 2004, which has pushed up the exchange rate of the Australian dollar.

In addition, the Australian dollar is a high-interest currency, and changes in the interest rate outlook in the United States and the yield of government bonds that reflect the interest rate outlook have a greater impact on it.

Pound Sterling

The pound sterling was once the world's currency, but it is currently the most valuable currency. Because of its high exchange rate against the US dollar, the daily fluctuations are also large, especially its trading volume is far less than that of the euro, so its currency characteristics are reflected in strong volatility. As the earliest foreign exchange trading center, London's traders' skills and experience are top-notch, and these trading skills are well reflected in the trend of the pound. Therefore, the pound is more artificial than the euro, especially the short-term fluctuations, and those traders' "deception" of less experienced investors can be described as a repeated success. Therefore, the short-term operation of the pound is a touchstone to test the skills of investors, and those who lack experience and skills should stay away from the pound.

The pound is a European currency and is closely linked to the euro. Because the UK is closely related to the economy and politics of the euro area, and the UK is one of the important members of the European Union. Therefore, the economic and political changes in the European Union have a great impact on the pound. For example, the political turmoil caused by the referendum in France and the Netherlands against the adoption of the European Union constitution, the euro fell sharply, which dragged the pound down.

In addition, the UK discovered North Sea oil, making it one of the few countries in the G7 that can be self-sufficient in oil. The rise in oil prices also benefits the pound to a certain extent. Compared with the yen, the pound has a better performance against the yen.

Yen

Because Japan's domestic market is small and export-oriented economy, especially in the past ten years of economic recession, exports have become a life-saving straw for domestic economic growth. Therefore, regular intervention in the foreign exchange market to keep the yen exchange rate from being too strong, and maintaining the competitiveness of export products has become Japan's customary foreign exchange policy. The Bank of Japan is the central bank that intervenes in the exchange rate most often in the world, and Japan's foreign exchange reserves are huge and the ability to intervene in the foreign exchange market is strong. Therefore, for foreign exchange market investors, it is of course necessary to pay attention to the Bank of Japan. The means of intervention in the foreign exchange market in Japan are mainly verbal intervention and direct entry into the market. Therefore, the frequent remarks of officials of the Bank of Japan and the Ministry of Finance have a great impact on the short-term fluctuations of the yen, which is what short-term investors need to pay attention to, and it is also the

It is also because the Japanese economy is closely linked to the world economy, especially with major trading partners such as the United States, China, and South East Asia. Therefore, the yen exchange rate is also more vulnerable to external factors. For example, the growth of the Chinese economy is increasingly important to the recovery of the Japanese economy, so the news of China's economic slowdown has an increasingly negative impact on the yen exchange rate.

Although Japan is an economic power, it is a political puppet. It can be said that it is a little guy of the United States, who follows the lead of the United States. Therefore, in terms of exchange rate policy, it basically needs to conform to the wishes and interests of the United States. For example, the "Plaza Agreement" in 1985 is the result of political weakness and being controlled by others. Therefore, the intervention in the exchange rate mentioned above can only be tossed within the framework of the "limited" by the Americans.

The rise in oil prices is negative for the yen, and while Japan's dependence on oil is decreasing, it remains psychological.

Canadian dollar

The Canadian dollar is also a commodity currency. It is the most export-dependent country among the seven Western countries. Its exports account for 40% of its GDP, and its exports are mainly agricultural products and seafood. At the same time, the Canadian dollar is a very typical dollar group currency (the dollar group refers to countries that have a very close relationship with the US economy, which mainly includes countries that have a free trade area or signed a free trade agreement with the US, mainly represented by Canada, Latin American countries and Australia). 80% of its exports are from the United States, and its economic dependence with the United States is extremely high.

This is reflected in the exchange rate, that is, the Canadian dollar against major currencies and the US dollar against major currencies move basically the same, for example, the euro against the Canadian dollar and the euro against the US dollar maintain a good symmetry in the graph, only in recent years, the general decline of the US dollar, this link has gradually weakened.

In addition, Canada is the only oil exporter among the seven Western countries, so the rise in oil prices is a big plus for the Canadian dollar, making it perform well in the cross against the Japanese yen.

New Zealand Dollar (NZD)

New Zealand has been a British colony since 1840 and finally declared independence. Its founding history does not exceed two hundred years. The country located in the South Pacific covers an area of about 270,000 square kilometers and has a population of about 3.66 million. It has good natural environment, suitable climate, developed agriculture, abundant resources and stable political situation, etc., making New Zealand enjoy the reputation of the South Pacific Paradise.

Over the past two decades, New Zealand has successfully transitioned from a predominantly agricultural economy to an internationally competitive industrial economy. The country's economy is still dominated by exports of agriculture, animal husbandry and tourism, while exports of goods and services account for 30% of GDP. The New Zealand dollar is a high-interest currency like the Australian dollar. The Central Bank of New Zealand is the Reserve Bank of New Zealand. It was established in 1934 and returned to the Reserve Bank of New Zealand in 1936 to set monetary policy independently. It publishes monetary policy reports every six months.

Swiss Franc

Switzerland is a traditional neutral country, and the Swiss franc is also a traditional safe-haven currency, which can attract safe-haven capital inflows during times of political turmoil. In addition, the Swiss constitution stipulates that each Swiss franc must be backed by 40% gold reserves. Although this requirement has expired, the Swiss franc still has some psychological connection with the price of gold. The rise in the price of gold can lead to a certain degree of increase in the Swiss franc.

Switzerland is a small country, so the exchange rate of the Swiss franc is determined by more external factors, mainly the exchange rate of the US dollar. In addition, because it is also a European currency, it usually follows the trend of the euro.

The Swiss franc is a small currency, which can quickly push up its exchange rate during special times, especially when political turmoil triggers a large demand for it, and can easily make it overvalued.