The EUR/USD currency pair shows two of the largest economies in the world. For this reason, the pair is no wonder the most popular traded currency pair worldwide. While the pair attract traders with its rich volatility and volume, earning enormous profits is not directly sure. In this page, you will about to learn everything about EUR/USD currency pair, including its history, signals, exchanges, strategy, news, and so much more.
Reasons To Trade With EUR/USD
Since this currency pair is the most popular among others, the EUR/USD trade vehicle is frequently emphasized on exchanges and trading platforms. But we are curious as to why a lot of traders are pursuing profits from this currency pair? Here are some of the reasons why:
- Liquidity – This currency pair offers consistent liquidity as well as low bid-offer spreads.
- Prevalence – Euro and US dollar are among the most popular reserve currencies around the world. Because of their size, an increase of financial data about the EUR/USD currency pair are widespread. It is the reason why the currency pair is easy to follow.
- Resource Availability – Some ways make short and long-term forecasts easier. Today, traders can get access to a candlestick, historical graphs, customizable indicators, as well as monthly charts. Those people who want to conduct a straightforward analysis can also use Elliott wave analysis. Also, they can get involved with trading communities where weekly predictions and forecasts are often available.
- Volume – Due to a large number of active day traders as well as market speculation, high levels of volatility is guaranteed. These can result in more profit potential.
Risks And Drawbacks Of EUR/USD Pair
While the EUR/USD currency pair comes with an array of trading benefits, the pair still has its set of drawbacks that every trader must consider:
- Automated Competition – The EUR/USD currency pair may be attractive for most day traders because of live and forward quotes, but the competition in this stage is fierce. Traders will be competing against the growing number of trading algorithms. They have to analyze the pair manually and move to the market using interactive charts. But, bots will instantly exit and enter positions the moment when specific criteria are fulfilled.
- Leverage – The truth is, trading on a margin can increase your chance of gaining profit. On the other hand, it can also trigger losses on your side. For this reason, you have to make accurate daily and weekly forecasts if you want to use leverage. It is among the crucial things that you have to note about.
- Volatility – Volatility may be included in the pair’s strengths, but its high volatility levels within the EUR/USD currency pair can lead to winning positions quickly changing into losing. Mostly, even 20-year charts and historical data are not able to allow you to adapt to the speed of price change.
Influences On EUR/USD Movement
If you have a deeper understanding of the things that affects the movement, you can come up with a more accurate EUR/USD live analysis. Among the most significant factor is the outlook and the strength of the two involved currency. In short, if the economy of Europe grows quicker than that of the US, the Euro will become stronger than the US dollar. The same is true if the US economy grows faster than the economy of Europe.
Also, take note that interest rates are among the telling gauge of the strength of one’s economy. Like for example, the US dollar most commonly strengthens when the interest rates of the United States stands as higher than huge players in European economies.
The political landscape is also among the crucial factor when it comes to trading with the EUR/USD pair. Instability can affect the movement of currencies, which is observed in the Brexit referendum. Major elections are not the only players in this area; events like the decoupling from the euro peg in Switzerland can also change the exchange rates.
What creates this change is the watch in different countries within Europe. For this reason, day traders must be alert with the latest economic and political news. In a simple excel spreadsheet, add the recent events the historical data of the EUR/USD. It will enable them to come up with more accurate forecasts for the year 2018 and beyond.
The imposed monetary policy by the respective central bank as well as the relationship of the EUR/USD also has their correlation. As observed in the global financial crisis of the year 2007, one of the most significant reductions in the USD vs Euro history.
During this period, an annual separation of the ECB and the USD Fed or Federal Reserve happened. The Fed utilized the QE measures to stimulate the US economy aggressively, but the ECB caused the delay of QE measures. The US was buying sovereign bonds as a measure of change for many years before the ECB took action.
Aside from that, the two had different priorities. And while the Fed opt to increase employment and stabilize prices, the ECB primarily thought about price stability.
As a result, the Forex news stories run around the activities of the Fed, while the ECB kept silent. Several state members also had a hard time with crippling debt, and people started to doubt the efficacy and longevity of universal monetary policy.
Without any surprise, this results in odd fluctuations of the EUR/USD pair. But now, investors mostly focus on expectations and projections of central bank policy to aid them against strategies which surround the currency pair.
Currency Correlations Of EUR/USD
Before focusing all your trading efforts on the EUR/USD, you need to consider particular correlations that the pair has with other currencies. Some currencies show several currency pairings. It is because all currencies are associated with one another. No currency trade completely independent of each other.
The relationship of currencies are categorized between positive and negative correlations. Check out the definition of the two below:
Negative Correlation – When currency pairs move in a different direction, the pair has a negative correlation. USD/CAD, USD/JPY, and USD/CHFare among the most popular pairs worldwide. The USD is the base currency of the EUR/USD pair, which means, the two currency move in the opposite direction.
Positive Correlation – Positive correlation is when pairs move parallel to each other. Among the three most popular currency pairs include the EUR/USD, AUD/USD, and the GBP/USD. These pairs all have a positive correlation. The primary reason for this is that the US dollar is the counter currency. It means any movement in the USD will affect all the currency pairs.
To understand the movement of currency pairs, EUR/USD traders must think carefully. For example, the US dollar vs the British Pound also seems like you are trading Euro vs British pound.
Sadly, it is not that simple. Market speculation and economic factors can lead to changes in currency correlations. A negative correlation can turn to positive and positive correlation have a chance to become positive.
The Day Strategies For EUR/USD Pair
The definition of an effective EUR/USD strategy is not limited to the understanding of the use of calculators and pip values to get the upper hand in trading. It is more than just having a hint for pre market sentiment; in fact, it is about utilizing your investing chart promptly to assess tick data as well as level up your options.
After having everything you need to understand the movement of EUR/USD, you have to pay close attention to your strategy. A per minute, daily, weekly, and all-time charts can be useful. But, learning the right time to trade is incredibly important.
Among the best things about Forex day trading is the freedom to buy and sell any time of the day. While this is a fact, it does not mean that you should. In every kind of trading, you have to observe the time when EUR/USD is active and see if it has a high level of volatility and volume.
When Europe and London open doors for business, all the currency pairs that involve Euro and British pound are traded actively. And when trading with EUR/USD, you can expect the volume charts to disclose the most active times when New York and London are open. The time between 8:00 and 22:00 GMT are the times when these markets are free.
Trading in the wrong timing can make you lose the opportunity for profits, which is why many traders recommend trading only within a 3 to 4-hour window.
The best time to trade with EUR/USD is around 13:00 – 16:00 GMT. It is when New York and London are both active. The Volume in both markets spreads are usually strict during this time range. It is also the time when forex forums become active and expect to see massive daily moves.
These factors can lead to huge potential profit. While it is tempting to be involved in every buys and sells opportunities that open every day, you need to resist.
Also, keep in mind to keep yourself from the alluring market noise pressure and graph into 12-hour day trading forecasts. Watch out on the facts you hold and make sure that volume proves any potential moves.
Narrow Range Patterns
The narrow range patterns of EUR/USD pair is a result of its climb and drop into a barrier then falling dormant afterwards, which results to narrow price range bars. It further leads to the minimal volatility of the currency pair. Also, it leads to strong entry signals for breakdowns and breakouts.
Buying And Selling The Breakdown/ Breakout
To make this strategy work, EUR/USD technical analysis and live harts are vital. You can observe the currency pair change back and forward within different sides for a considerable period. The result of this is a clear trading range that should start new trends, either lower or higher.
The History Of EUR/USD Pair
Twenty years ago, before the binary options and mini futures became available, the forex markets had a different situation. Back then, the French franc vs US dollar and the German Deutschmark vs. The US dollar-dominated the market.
But in the year 1999, the foreign exchange history changed. Euro once had two earlier versions including ECU or the European currency unit and the European unit of account.
Even though Euro only become a physical currency in 2002, its launch in the year 1999 brought all the Eurozone currencies together including:
- Italian lira
- German Deutschmark
- Spanish peseta
- French franc
Taking note of the important dates will allow you to monitor the EUR/USD pair. Here are some of the most important events that every trader must watch know:
- December 16, 2008 – When the Federal Reserve System lessen rates to almost zero.
- December 18, 2007 – The date when the FRS cut fed fund rates of about 50 basis points.
- October 19, 2009 – The new government of Greece amends latest deficit forecasts from 6.7-percent of GDP to 12.7-percent.
- December 18, 2013 – The FRS announced the ‘tapering’ of movement would start in January 2014.
- January 22, 2015 – The ECB launched the full-blown QE, which weakens Euro against the US dollar.
- July 14, 2014 – The ECB or European Central Bank President Mario Draghi ready the market for QE or quantitative easing. For this reason, the Euro becomes weak against the dollar.
- Real estate bubble – It was thought that the bubble leads the 2007 to 2009 recession. It has brought massive damage to the US economy.
- Dot-com bubble – The year 1997 to 2001 when people saw speculation that moved the EUR/USD relationship. Years have passed before the dust settles as well as for stability too is achieved.
- European debt crisis – The effect of the European Debt crisis still exists today. It made a significant impact on the relationship between the EUR/USD pair.
It may be very inviting to trade with EUR/USD because of the popularity of the two currencies worldwide, but traders must be careful when making decisions. Just like any other currency pairs, it takes considerable knowledge and timing to make things work for your favor.