Foreign Exchange Rates

Foreign exchange rates are defined as the relative values between two currencies. Specifically, the exchange rate is the quantity of one currency required to buy or sell one unit of the other currency. Another way to look at it is that the exchange rate between two currencies specifies how much one currency is worth in terms of the other.

Since currencies trade in pairs, foreign exchange rate quotations consist of 2 parts, a term currency and a unit currency. The term currency represents the number of units that can be bought or sold in terms of one unit of the unit currency (also called the base currency).

When looking at a quote for a currency pair such as the EUR/USD, the first component (EUR) represents the unit or base currency. The second component represents the term currency.

For example, in the quotation EUR/USD = 1.3900, 1 euro is exchanged for $1.39 US dollar. If the quote moves from EUR/USD 1.3900 to EUR/USD 1.3920, the euro has strengthened with respect to the US dollar, and the dollar has weakened with respect to the euro.

Conversely, if the EUR/USD quote moves from 1.3900 to 1.3880 the euro has weakened with respect to the US dollar, while the US dollar has strengthened with respect to the euro.

It is important to understand that this quote only reflects the relative strength or weakness of these 2 currencies with respect to each other, and not the other currencies that trade in pairs with the USD and EUR. Each pair will have its own unique relationship at any given time.

Today, it is easy to find the exchange rate for any currency pair using one of the many online currency converters that are available.

Click the link below to see an example:
Foreign Exchange Rates

The Trend Zone - Forex Trading System is based on this exchange rate relationship. We look for currency pairs to trade in which one currency in the pair is strengthening with respect to the other.

The unique tools used in this system rely on a real time data feed that monitors changes in the exchange rate of the pair we are trading, so that we can easily match a strong currency with a weak currency.