Major currency pairs are, of course, well-known and most traded in the forex market. However, there are many minor currency pairs that are popular amongst traders, providing various opportunities to enter positions.
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The cross-currency combinations, free of the dollar's influence, offer a different view of the market. They're more volatile, but that volatility breeds opportunity.
Best Minor Forex Pairs to Trade at a Glance
- EUR/GBP (Euro/Great British Pound): The EUR/GBP has had a bumpy ride since the Brexit vote in 2016 but is a popular pair to trade.
- EUR/JPY (Euro/ Japanese Yen): This pair has been heavily impacted by interest rate differentials in recent years.
- GBP/JPY (Great British Pound/Japanese Yen): The yen’s safe haven status can have a substantial impact on the movement of the GBP/JPY pair.
- GBP/CAD (Great British Pound/Canadian Dollar): The GBP/CAD can be heavily influenced by oil prices as Canada is a significant exporter.
What Are Minor Forex Currency Pairs?
Minor currency pairs are also called cross-currency pairs. These are FX currency pairs that do not include the “greenback” (US dollar). However, they involve two of the world's other major currencies, including the euro, the Japanese yen, the Great British pound, the Canadian dollar (CAD), the Australian dollar (AUD), and the Swiss franc (CHF).
While they are less liquid than major currency pairs, due to the absence of the US dollar, they have more liquidity and volatility than exotic currency pairs. As a result, when trading the pairs, the spread your broker charges will generally be less than exotic pairs and more than major pairs.
The USD is an essential and valuable currency that every forex trader tends to be aware of and monitor. Still, profitable trading strategies can be developed using minor currency pairs as well.
What Are the Best Minor Currency Pairs to Trade?
Although they don’t include the US dollar, traders can still find trading opportunities in the minor pairs as each currency has significant factors that impact its movement on a daily basis. For example, the GBP is affected by factors such as the Bank of England’s monetary policy. In addition, Brexit played a major role in the pound’s previous valuation. Minor currency pairs can experience short-term volatility and high liquidity, making them popular with day traders. Even so, be aware that minor currency pairs will have a slightly more increased risk than major pairs. Here are the best minor pairs to trade:
- EUR/GBP
- EUR/JPY
- GBP/JPY
- GBP/CAD
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EUR/GBP (Euro/Great British Pound)
The EUR/GBP currency pair allows traders to profit from the economic developments within the European landscape. Its movement intricately reflects the monetary policies enacted by the European Central Bank and the Bank of England. At the same time, the lingering subject of Brexit also plays a role, although that has died down over the past couple of years.
This liquidity-rich forex pair attracts traders seeking both volatility and opportunity. Mastering this pair, however, demands knowledge of various factors, such as interest rate differentials and economic and political policies.
EUR/JPY (Euro/ Japanese Yen)
The EUR/JPY is among the forex market's most popular currency pairs. This pairing pits the eurozone's economy against the safe-haven haven of the Japanese yen.
The EUR/JPY is impacted by the divergent monetary policies between the European Central Bank and the Bank of Japan, which fuel interest rate differentials. For example, with the European Central Bank (ECB) raising rates and the Bank of Japan (BoJ) keeping its low-rate policy, the euro has risen considerably against the yen. In addition, economic data releases and political developments in both economies can trigger rapid shifts in sentiment. Geopolitical tensions and global risk aversion further amplify the pair's volatility, offering opportunities and risks for seasoned traders.
Despite its complexities, the EUR/JPY's liquidity and potential for substantial price movements make it a magnet for experienced forex participants. Carry trades utilizing the yen's low yields, technical analysis of its historical trends, and quick reactions to news-driven events are just some of the strategies employed by traders to navigate the ever-shifting market.
GBP/JPY (Great British Pound/Japanese Yen)
Much like the EUR/JPY above, the GBP/JPY has moved more recently based on the two central banks' different interest rate policies, with the Bank of England (BoE) raising rates.
The GBP/JPY's movements are also impacted by economic data releases and political developments in both the UK and Japan, fueling further volatility. In addition, given the pound's weakness over recent years and the Japanese yen’s currency movements being impacted by global risk sentiment, during economic or geopolitical uncertainty, the pair will tend to head in favour of the JPY.
Overall, the GBP/JPY's liquidity and price swings attract experienced traders seeking both short-term day trading or scalping opportunities and long-term carry trade strategies.
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GBP/CAD (Great British Pound/Canadian Dollar)
The GBP/CAD blends the British pound, a symbol of global finance, with the Canadian dollar, heavily influenced by its vast natural resources and trade ties with the US.
While interest rate differentials play a crucial role, the GBP/CAD's movements are also heavily impacted by the sensitivity to commodity prices, particularly oil. As a major oil exporter, the Canadian dollar strengthens when oil prices rise. At the same time, the ebb and flow of global economic sentiment and other UK-specific related uncertainties can sway the pound.
The dependence on factors such as oil prices can make the GBP/CAD a volatile pair, with fundamental analysis of both economies, global oil prices, and political developments crucial for navigating long-term positions.
