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What Is a Key Currency FX Trading?

If taken more generally, key currency refers to any currency used by a nation to trade internationally. In more specific definitions, however, key currency points toward the money used by countries that belong to the Group of Seven. The Group of Seven is composed of countries that are considered to be leading the economic field internationally. Because they are leading countries, they usually trade with several other nations. This means that the key currency is valuable not just to themselves but also to those trading partners. You can already get a sense of this meaning from the very term “key.” A key currency is, therefore, very important in the field of forex trading.
Investigating the role of key currency in foreign exchange
Just how valuable is key currency in foreign exchange trading?  Key currency is more liquid than other currencies because many traders are using it together with another currency as pairing. Having both key currencies in a pairing is also popular. One key currency is powerful on its own but having two dominant currencies could ensure wins if you know when to trade which for which other. A key currency can battle with another key currency for dominance. That is where you should be extra wary.
Picking a key currency to trade with
As of now, the US dollar is still dominating the key currency list. There other powerful currencies such as the British Pound and the European Euro. The Japanese Yen may have a small value, but it is quite popular in foreign exchange trading. It is still considered a key currency. Though the US dollar has proven itself dominant for many years, it is still wise to be constantly updated with which key currency is rising and which key currency is falling. This is the rule when it comes to foreign exchange trading. You always have to be on the watch for changes.

Forex Market Analysis: Mass media, Central Banks and the FX market

What can be said of the Swiss National Bank’s declaration that they will “work hard” to keep the Franc from gaining too much strength against the Euro?

To me, it is not important that the SNB is looking to devalue their currency in order to protect their overall economy, it is what a Central Bank needs to do, it is why they are there.

But what my problem is has more to do with the publicity behind their comments. Philipp Hildebrand, the SNB president, is a veteran political economist who knows deep down what the role of a Central Bank is and how the Forex market works – coming on an interview, announcing a press conference to explain the obvious seems puzzling; unless you look at it from a different perspective.

Prior to the report yesterday in which Hildebrand made his comments, the Franc had been rallying against the Euro and was actually lower on a trend against a variety of other majors.

Yet, a glance at the trading chart from yesterday shows something remarkable, something that continues through today – the Franc began sliding to the Euro and rallying against the others – a full reversal. This can be explained very simply by one word – psychology.

You see, the role of Central Bank is to play around with interest rates, tweak monetary policy to ensure that producer prices are reasonable and that inflation and deflation are kept in check.

But the best tool a Central Banker has at his or her disposal is the media.

Alan Greenspan was a master of this technique, one that is being used today by the US’s Bernanke and most recently Japan’s Fujii.

You see, by making this public, by telling the world that this is what we are going to do, you in effect, negate the need for you to actually do anything – the market will react and your wishes will be fulfilled without having done so much as even thought about how you would accomplish this.

The Franc declined versus the Euro yesterday because traders thought, based on the comments, that the SNB would do something to lower to Franc against a weak Euro – perhaps buy Euro’s in bulk or sell of more Franc’s (keep the presses running) – but as a result of the staged and well rehearsed ambiguous remarks, there is no need for him to do anything. It works every time.