Currency Pair Selection: How to Choose the Best Major Currency Pair for Trading

This course will guide you through choosing the best major currency pair for trading, helping you focus on one trade at a time. Here’s what you can expect to learn:

1. Understanding Major Currency Pairs

• The 7 major forex pairs and why they dominate the market.
• Key factors that drive each currency pair’s price movements.

2. Best Pairs Based on Trading Sessions

• What different market sessions (Asian, London, New York) affect volatility.
• Which pairs are most active during each session.

3. How to Analyse USD Strength

• The role of the U.S. Dollar Index (DXY) as a base in trading the Majors.

4. Comparing Two Currencies to Pick the Best Trade

• How to use cross-pairs (e.g., EUR/GBP, AUD/NZD) to determine strength.
• A step-by-step approach to choosing between correlated pairs like EUR/USD vs GBP/USD.

5. A Simple Framework to Choose the Right Pair

• A quick cheat sheet for making trade decisions based on USD strength.
• A logical process to ensure you trade the strongest vs the weakest currency.

By the end of this guide course, you'll be able to confidently filter the best major currency pair for your trades based how one currency is stronger over the other. 🚀

Have you ever heard the famous Pokémon slogan: "Gotta catch 'em all!"?

This phrase represents the journey of becoming a Pokémon Master—a relentless pursuit of catching every Pokémon in the fantasy world. Collecting them all symbolises mastery, dedication, and growth, reinforcing the idea that true output comes from continuous effort and learning. In the Pokémon world, becoming a Pokémon Master means capturing every creature, symbolising dedication, strategy, and expertise. But in trading, does mastery mean trading every possible currency pair at all times?

The notion that mastering the trading universe means executing every possible trade, every possible market at all times is simply a myth. True mastery isn’t about trading everything; it’s about focusing on a select few opportunities. As Mike Bellafiore of SMB Capital advocates with his "One Good Trade", also the same title of his book, philosophy, a sustainable approach often involves concentrating on a handful of trades that you understand deeply and can manage effectively.

The same principle applies to forex trading. While it may be tempting to trade every currency pair available—especially with some platforms offering up to 330 pairs—the key question is: Is it manageable? And more importantly, does every correlated pair move with the same momentum?

Not All Correlated Pairs Move the Same Way

Forex markets offer over 330 tradeable currency pairs, and while some move in sync due to strong correlations, others don’t follow the same rhythm. As a beginner in the currencies market, focusing on the Majors could be a good starting point. Trading the Major currency pairs like EUR/USD and GBP/USD tend to move together, but their momentum and volatility can vary significantly due to economic data, geopolitical events, market sentiment or even based on technical structures.

For traders—whether beginners or advanced—the goal isn’t to trade everything but to identify one good trade at a time. You can just even focus on the Major Currencies. Instead of being overwhelmed by endless options, focus on a few high-probability setups where correlation actually strengthens your edge.

Take EUR/USD and GBP/USD as examples. While both pairs might show a positive correlation of 0.85 or higher, EUR/USD might experience less volatility during certain market conditions, making it a more suitable choice for risk-averse traders. This selective approach allows traders to develop deeper market understanding and maintain better risk management.

The 7 Major Pairs:

1. EUR/USD (Euro / U.S. Dollar) – Most traded pair, highly liquid, influenced by ECB & Fed policies.
2. USD/JPY (U.S. Dollar / Japanese Yen) – A popular risk sentiment indicator, affected by interest rate differentials.
3. GBP/USD (British Pound / U.S. Dollar) – Highly volatile, influenced by UK economic data and BoE policies.
4. USD/CHF (U.S. Dollar / Swiss Franc) – Considered a "safe haven" pair, moves with global risk sentiment.
5. AUD/USD (Australian Dollar / U.S. Dollar) – Tied to commodity prices (gold, iron ore) and risk sentiment.
6. USD/CAD (U.S. Dollar / Canadian Dollar) – Correlates with oil prices due to Canada’s oil exports.
7. NZD/USD (New Zealand Dollar / U.S. Dollar) – Influenced by commodity prices and risk appetite.

Why Are They Called “Majors”?

• They involve the USD, the world's primary reserve currency.
• They account for over 70% of global forex trading volume.
• They offer high liquidity, making them easier to trade with lower spreads.

Why Trade Major Currency Pairs?

• High Liquidity – Major pairs (EUR/USD, USD/JPY, GBP/USD, etc.) have the highest trading volume, ensuring tight spreads and minimal slippage.
• Lower Trading Costs – Due to high liquidity, major pairs typically have lower spreads and commissions compared to exotic or minor pairs.
• Strong Market Trends – Major currencies are tied to the world's largest economies, making them more predictable based on economic indicators and monetary policies.
• Better Technical & Fundamental Analysis – Extensive data, research, and news coverage provide traders with reliable tools for analysis.
• Consistent Volatility – Major pairs offer enough volatility for opportunities without extreme, unpredictable price swings.

Step 1: Identify Your Trading Session

Determine which trading session (Asian, European, or U.S.) you will be trading, as liquidity and volatility vary across sessions, pairs.

Best Major Currency Pairs to Trade by Session

Asian Session (Tokyo) – 19:00 - 00:00 UTC-5

• Best Pairs: USD/JPY, AUD/USD, NZD/USD
• Why?
  • JPY is highly active due to Tokyo being the financial hub of Asia.
  • AUD and NZD see movement due to economic releases from Australia and New Zealand.
  • Liquidity is lower compared to other sessions, favoring pairs with strong regional influence.

European Session (London) – 02:00 - 05:00 UTC-5

• Best Pairs: EUR/USD, GBP/USD, USD/CHF
• Why? 
  • London is the largest forex trading hub, bringing high liquidity and volatility.
  • EUR, GBP, and CHF see the most movement as major European economies release data.
  • Strong trends and price action make these pairs ideal for breakout and momentum trading.

U.S. Session (New York) – 07:00 - 15:00 UTC-5

• Best Pairs: EUR/USD, GBP/USD, USD/CAD, USD/JPY
• Why? 
  • Overlaps with the London session (7:00 AM – 12:00 PM UTC) provide the highest volatility.
  • USD pairs dominate due to major U.S. economic releases and market reactions.
  • USD/CAD is active due to oil price correlation and economic events from both the U.S. and Canada.

Overlapping Sessions (London & New York: 07:00 - 12:00 UTC-5)

• Best Pairs: EUR/USD, GBP/USD, USD/JPY
• Why? 
  • The most volatile period with high liquidity and sharp price movements.
  • Ideal for day traders and scalpers looking for strong trends.

Step 2: Analyse USD Strength

Assess whether the U.S. dollar is trending bullish or bearish, as it serves as a key benchmark for major currency pairs.

How to Analyse USD Strength:

1. Check the U.S. Dollar Index (DXY): 
   • DXY Uptrend: USD is strong → Look for shorting opportunities in EUR/USD, GBP/USD, AUD/USD, NZD/USD Look for buying opportunities in USD/CAD, USD/CHF
   • DXY Downtrend: USD is weak → Look for buying opportunities in EUR/USD, GBP/USD, AUD/USD, NZD/USD Look for shorting opportunities in USD/CAD, USD/CHF
2. Review Economic News: 
   • High-impact news (NFP, CPI, FOMC) can shift USD strength.
   • Strong data → Bullish USD, Weak data → Bearish USD.
3. Assess Market Sentiment: 
   • Risk-On Environment (Bullish Stock Market, Low Volatility): USD weaker, favoring EUR/USD, GBP/USD, AUD/USD, NZD/USD longs & USD/CAD, USD/CHF shorts
   • Risk-Off Environment (Stock Sell-Off, High Volatility): USD stronger, favoring EUR/USD, GBP/USD, AUD/USD, NZD/USD shorts & USD/CAD, USD/CHF longs

For this example, we can see that USD is still on a downside continuation suggesting that its weak. Since USD is weak, we are looking for longs on the foreign pairs.

For Trading the USDJPY, analyse the USD and JPY Index:

Use the same process as we did with analysing the Dollar index with Japanese Yen index.

Step 3: Compare Two Currencies Against USD

Once USD strength is identified, select the strongest and weakest currency in your session to find the most probable opportunity to trade.

How to Find the Best Currency Pair to Trade:

1. Identify the 2 Correlated and Most Relevant Pair in that Session.

If you are for example in London Session, the 2 with the most volatility is EUR/USD and GBP/USD.

2. Combine the 2 Currencies Paired with USD

If we plan to trade EUR/USD or GBP/USD, we can use EUR/GBP as a reference pair to compare the relative strength of EUR and GBP.

3. Check the 3rd Currency Pair Created. Determine its strength like how you analysed USD strength.

In the given example, EUR/GBP is in a downtrend in its current leg. This indicates that while the pair is declining, it does not necessarily mean both currencies are weak. Since EUR is the base currency (on the left) and GBP is the quote currency (on the right), a falling EUR/GBP suggests that GBP is stronger than EUR. Conversely, if EUR/GBP were rising, it would indicate that EUR is stronger than GBP.

Other Combinations for the Major

For AUD/USD and NZD/USD, the third currency is AUD/NZD.

For USD/CAD and USD/CHF, the third currency is CAD/CHF.

Step 4: Select the Optimal Currency Pair

Use the strongest and weakest currency combination to form a third pair and choose the best trading opportunity based on momentum and trend direction.

Note:

• Before selecting a currency pair, establish whether the U.S. Dollar is bullish or bearish.
• As a second criterion, determine if the combined currency—EUR/GBP in this case—is trending bullish or bearish.

In the given example, EUR/USD is struggling to break out of its range, while GBP/USD is clearly trending upward.

Since EUR/GBP is declining, this indicates GBP strength and USD weakness, making GBP/USD the more favorable trade. However, AUD may present an even better opportunity.

In this case, AUD/NZD is in a bullish trend. While both AUD and NZD are also trending upward, the strength of the move favors AUD over NZD. NZD is in an uptrend but moving at a slower pace, making AUD the better trade choice.

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With the premise that the Dollar is weak, USD/CAD and USD/CHF should not be trending upward. Similarly, when comparing USD/CAD and CAD/CHF, it’s clear that CHF is gaining strength more easily than CAD. This makes CHF the better trade for downside potential.

Cheat Sheet

EUR/USD vs GBP/USD

• If Dollar is Strong, and EUR/GBP is Strong → Short GBP
• If Dollar is Strong, and EUR/GBP is Weak → Short EUR
• If Dollar is Weak, and EUR/GBP is Strong → Long EUR
• If Dollar is Weak, and EUR/GBP is Weak → Long GBP

AUD/USD vs NZD/USD

• If Dollar is Strong, and AUD/NZD is Strong → Short NZD
• If Dollar is Strong, and AUD/NZD is Weak → Short AUD
• If Dollar is Weak, and AUD/NZD is Strong → Long AUD
• If Dollar is Weak, and AUD/NZD is Weak → Long NZD

USD/CAD vs USD/CHF

• If Dollar is Strong, and CAD/CHF is Strong → Short CHF
• If Dollar is Strong, and CAD/CHF is Weak → Short CAD
• If Dollar is Weak, and CAD/CHF is Strong → Long CAD
• If Dollar is Weak, and CAD/CHF is Weak → Long CHF

Final Thoughts: Trading the Most Probable Major Currency Pair

Trading is not about catching them all; it’s about identifying one good trade at a time.

By following these steps:

✅ Identifying your trading session for optimal liquidity

✅ Analysing USD strength to determine market sentiment

✅ Comparing two correlated pairs to find relative strength

✅ Choosing the best major currency pair based on momentum

You can focus on high-probability setups that align with market conditions and avoid unnecessary risks.