In the following example, we will use the most basic method of analysis to help us decide whether to buy or sell a specific currency pair.
EUR / USD
In this example, the Euro is the base currency of the currency pair.
If you think the US economy will continue to deteriorate, which is not good for the US dollar, you can enter the market to buy EUR / USD. This shows that you are long EUR and short USD. On the contrary, you think that the US economy will continue to improve, the dollar exchange rate will rise, and the euro / dollar will fall. At this time, you need to enter the market and short the currency pair.
USD / JPY
In this example, the US dollar is the base currency of the currency.
If you think that the Japanese government will implement a “weak yen” policy, then you can go long USD / JPY, which shows that you expect the currency pair to rise.
Similarly, if you think that Japanese investors are converting all US dollars into Japanese yen from the US financial market, or if Japanese multinational corporations are repatriating profits back to Japan, then this may cause the US dollar to fall under pressure and the Japanese yen will be supported by buying , And then strengthened. At this time, you need to sell the USD / JPY currency pair.
GBP / USD
In this example, the British pound is the base currency.
If you think that the British economy will continue to grow and develop better than the US economy in the long run, then you can foresee that the British monetary authority will adopt a austerity policy and the British pound will rise. At this time, you need to buy the British pound / US dollar currency pair.
On the contrary, if you think that the British economy is declining and the US economy is showing continued growth, then you need to sell pounds and buy dollars.
USD / CHF
In this example, the US dollar is the base currency.
If you think the Swiss franc exchange rate is overvalued, the Swiss National Bank may enter the market to buy dollars and sell the Swiss franc to intervene, then you need to buy USD / CHF. By the same token, if you feel that the US economic growth is slowing down, or the market’s hedging demand is heating up, the Swiss franc as a safe-haven ratio has a safe-haven buying support, then you need to short the USD / CHF.