Major Currency Pairs, Pips and the Dollar Index (DXY)

Currencies are always traded in pairs, because the price of one currency must be measured against another.

Reading a currency pair price

Example: EUR/USD = 1.1000

• The first currency (EUR) is called the Base Currency
• The second currency (USD) is called the Quote Currency
• This means 1 euro can be exchanged for 1.10 dollars
• If the price rises to 1.1100, it means the euro has strengthened or the dollar has weakened

Major pairs (Majors)

Pairs that do not include the dollar, such as EUR/JPY or GBP/JPY, are called Cross pairs. Pairs that include an emerging-market currency, such as USD/THB, are called Exotic pairs, which have lower liquidity and wider spreads.

What is a pip?

A pip is the smallest conventional unit of price change.

• For most currency pairs, 1 pip = the 4th decimal place (0.0001). For example, EUR/USD moving from 1.1000 to 1.1025 = 25 pips
• For pairs involving the yen, 1 pip = the 2nd decimal place (0.01)

The Dollar Index (DXY)

The U.S. Dollar Index (DXY) measures the value of the dollar against a basket of 6 currencies. It started at 100 points in 1973.

DXY rising = the dollar strengthening overall, which often puts pressure on gold, commodities and emerging-market currencies. Because the euro has the largest weight, DXY tends to move in the opposite direction of EUR/USD.