What is a currency pair? Recently there has been talk of a wall between the US and Mexico. This wall has been the talk of much conversation in the political world and on the news media.
Now you might be asking what does this have to do with currency pairs. We will get to that in a minute but first. Several years ago I was in Aguascalientes Mexico. There were several things I noticed as we flew into Aguascalientes. First there were people with machine guns at the airport. Second the people drive crazy. And third for one US dollar you could get 13 pesos. That has changed recently. Currently this currency pair is 1 for 20. So that means the Mexican peso has gone down against the US dollar. Now this currency pair has been in the news lately because of the political environment but it’s not the only currency pair in the world. If you go to futures website you will see the futures market for many currency pairs.
This is the market where you can trade currency pairs. Many things can move a currency pair. When a country’s debt rises that can cause a move in the country’s currency pair against another. War can cause the currency pair to move. Oil prices can cause a currency pair to move.
Currency Pair Examples
So how do you trade a currency pair? First you must have a brokerage account that allows you to trade futures or you have to trade it through an ETF.
An example of an ETF is UUP.
You can see the up trend from Election Day to first of January. This is probably due to the election.
Lets at another example the Mexican Peso. Look at the movement on election day.
Mexican Peso VS US Dollar
Another example is the FXB ETF
Now we see in June FXB fell off a cliff. Well what happened? Brexit is the answer. So we can see how events can drive currency pairs.
Trade the trend
Now obviously there is no way to predict those kinds of events. That is the reason it is important to trade the trend. Trend following is a method that works on all markets.