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The most frequently traded currency pair is the euro/U.S. dollar. The euro is the base currency in the pairing, while the dollar is the quote currency. It shows how much of the quote currency is needed to buy one unit of the base, or how many U.S. dollars are needed to buy 1 euro.

This pairing tends to have a negative correlation with the U.S. dollar/Swiss franc pairing, meaning as one moves up, the other moves in the opposite direction. It also has a positive correlation – meaning both currencies will move in the same direction – with the British pound/U.S. dollar. The euro, pound and franc have a positive correlation with each other.

The U.S. dollar/Japanese Yen is the next most traded pair, and is called trading the gopher. It tends to correlate positively with the U.S. dollar/Swiss Franc and U.S. dollar/Canadian dollar pairs because the U.S. dollar is the base currency in each.

Trading the British pound/U.S. dollar pairing is called trading the cable. It usually has a negative correlation with the U.S. dollar/Swiss Franc pairing, but a positive correlation with the euro/U.S. dollar.

The U.S. dollar/Canadian dollar currency pair correlates negatively with the Australian dollar/U.S. dollar, the British pound/U.S. dollar, and the euro/U.S. dollar because the U.S. dollar is the base currency in its pairing with the Canadian dollar.

The U.S. dollar/Swiss franc usually has a negative correlation with the euro/U.S. dollar and British pound/U.S. dollar. Forex traders have long considered the franc to be a safe haven during times of political unrest.

And the Australian dollar/U.S. dollar pair tends to have a negative correlation with any pairing that does not use the U.S. dollar as the quote currency.

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