The base currency is ALWAYS equal to one of the currency's monetary unit of exchange (i.e., 1 Euro, 1 Pound, and 1 Dollar). When an investor buys 100,000 EUR/USD, he is said to be buying (or receiving) the EURO or the Base Currency and selling (or paying for) the USD or Counter Currency. The amount of the Base Currency he is buying is equal to 100,000 Euros. Note that this is true no matter the current exchange rate at the time. The base currency amount remains constant.

The Counter Currency equivalent amount that the investor is selling (or paying), on the other hand, will fluctuate with the exchange rate for the Currency Pair. It is equal to:

(Amount of Base Currency x Market Foreign Exchange Rate)
Since the Counter Currency is the part of the currency pair that fluctuates higher or lower, it determines the strength or weakness of both currencies in a currency pair. As one currency goes up, the other must go down.
Currencies trade in fractions of a full unit. The smallest fraction is called a "pip" (click and get a little pop up page 6). Currencies trade in pips because exchanges of currencies for speculative reasons are generally for large amounts. This is because of the leverage that is available when trading Foreign Exchange.

HY Markets provides a Maximum Trading Leverage Ratio of 260:1 for mini accounts. At that ratio, a 100,000 EUR position would require $500 of Margin at an exchange rate of 1.3000. This is calculated by taking the US$ equivalent of 100,000 EUR or US$130,000 and dividing by the 260:1 leverage ratio.
Margin Required = $130,000 / 260 = $500

To determine the value of a pip for the deal above the following calculation would be made:

Value in US$ = 1.30 x Par Amount of Base Currency = $130,000
Value in US$ - a pip = (1.30 -.0001) x Par Amount of Base Currency = $129,990
The value of a pip in dollars is equal to $130,000 - $129,990 or $10.

When a currency pair goes from a low price to a higher price, the Base Currency is said to have strengthened or gotten stronger. The converse is true for the Counter Currency. That is, it has weakened or gotten weaker as the Base Currency has gotten stronger.

Since Exchange Rates represent what a fixed amount of currency is equal to in terms of another currency, we have seen there is just one price for the Currency Pair. The movement of that price determines whether a currency is getting stronger or weaker.

If the EUR/USD exchange rate goes from 1.2000 to 1.2024, we have concluded that the EUR got stronger, the USD weaker. Why?

When looking at Foreign Exchange Rates (or prices) an action to Buy the Currency Pair implies buying the Base Currency, or EUR, and selling the Counter Currency, or USD. If the EUR/USD exchange rate moves higher, as expected, the trader can now sell the EUR/USD at a dearer/higher price. The difference represents a Profit to the trader that was Long, or who bought the EUR/USD Currency Pair.
Another way of looking at it is at 1.2000, an investor/trader could exchange 1 EUR for $1.20. At 1.2100, however, that same single EUR can now be exchanged for a higher amount of USD, in this case $1.21 USD. The EUR has strengthened or gotten stronger.

One currency in a currency pair is always dominant. It is called the Base Currency. The base currency is identified as the first currency in a currency pair. It also is the currency that remains constant when determining a currency pair's price.

The Euro is the dominant base currency against all other global currencies. As a result, currency pairs against the EUR will be identified as EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD, etc. All have the EUR acronym as the first in the sequence.

The British Pound is next in the hierarchy of currency name domination. The major currency pairs versus the GBP would, therefore be identified as GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD. Apart from the EUR/GBP, expect to see GBP as the first currency in a currency pair.

The USD is the next dominant base currency. USD/CAD, USD/JPY, USD/CHF would be the normal currency pair convention for the major currencies. Since the EUR and the GBP are more dominant in terms of base currencies, the dollar is quoted as EUR/USD and GBP/USD.

Knowing the base currency is important as it determines the values of currencies (notional or real) exchanged when a foreign exchange deal is transacted.

The Counter Currency is the second currency in a Currency Pair notation.