EUR-USD Trading

EUR/USD Trading

The EUR/USD is the ticker for the euro dollar exchange rate. It is one of the majors in Forex, and because it represents the world’s largest economies and trading blocks, it is also the most liquid pair. EUR/USD is the world’s most liquid currency pair, and offers traders, who wish to buy or sell it, consistently low spreads throughout. It is the most recommended pair to trade for all types of traders, even newbies, because of the unique combination of liquidity and volatility.

Reading the EUR/USD Price

Like any other currency pair, the EUR/USD represents the price of the base currency (euro) in relation to the quote currency (US dollar). Thus, when the price of the EUR-USD pair is rising, it means that the euro is strengthening over the US dollar; and when the price of the EUR/USD is falling, it means that the value of the euro is declining relative to the US dollar. The price quote of the eur/usd essentially represents the amount of dollars it would take to acquire one euro. So, for example, when the price of the EUR-USD is 1.20, it means that to buy 1 euro, one would have to pay 1.20 US dollars.

History of the EUR-USD

Because the EUR-USD is the most popular currency pair in the Forex trading market, it is hard to imagine that some 20 years ago it was not around. The EUR/USD has only been around since the 1^st of January 1999, when the euro came into existence after 19 European countries adopted a single currency. The EUR-USD started with the value of 1.1795 and fell to an all-time low of 0.8225 in October 2000 as countries were still adjusting to the common currency. It started appreciating as adoption became widespread and posted an all-time high of 1.6037 on July 2008 during the global financial crisis. In financial circles, the euro-dollar pair is referred to as Fiber, while the other major pair, the GBPUSD, is referred to as Cable. As the euro is much newer, traders decided to make an ‘improvement’ to the ancient US-UK telecommunications cable, to a much newer ‘Fiber’ cable.

Major Bodies Influencing the EUR/USD

Interest rates are the major factor influencing the EUR/USD. As such the ECB (European Central Bank) and the Fed (US Federal Reserve Bank) are the major bodies that EUR-USD traders track for a broader fundamental view of the pair. The Fed releases the Federal Funds rate eight times a year, while the ECB does so monthly. The actual rates are important, but as well, traders watch out for the accompanying rate statement which provides a clue of the future policy direction of the two most powerful Central Banks. Employment numbers also impact the EUR/USD significantly. In the US, the Nonfarm Payroll numbers are released by the Bureau of Labor Statistics on the first Friday of every month, with this data usually providing so much volatility for the pair. In Europe, consolidated employment numbers for the region, as well as those of major economies, such as France and Germany, also impact the price of the EUR/USD greatly.

EUR-USD Correlations

The EUR-USD has always posted a near perfect negative correlation with the USDCHF, which means that the Fiber has almost always risen when the USDCHF is falling. On the other hand, EUR/USD has always shown a positive correlation with the GBPUSD. These correlations are near perfect, and largely because the pairs share the US dollar, as well as European heritage. Still, correlations do change, and traders must always trade them carefully, doing the necessary analysis.

EUR/USD Trading Main FAQs

• Why is the EUR/USD so popular?

  The popularity of the EUR/USD pair is no surprise. It comes down to simple demand, primarily from multi-national corporations that need to buy and sell in both the U.S. and Europe. And because these corporations generate such a large amount of liquidity for the pair the retail traders have also joined in to take advantage of the ease of trade and the extremely tight spreads to be had. Plus the economic and political factors that can move both the U.S. dollar and the Euro are completely clear and transparent, saving traders from any surprise moves in most cases.
• Do I need to trade the EUR/USD?

  As the most traded asset in the world you certainly shouldn’t be going wrong by trading the EUR/USD. You’ll get excellent liquidity at all times, and extremely tight spreads, which will help you keep more profits to yourself. The steady moves in the EUR/USD also make it the ideal pair for day trading, swing trading, and scalping, so you can apply any trading strategy to the pair. Finally, the transparency in the European Union and United States makes it a simple task to analyze the fundamental factors affecting the pair and to gauge the correct trading direction.
• What’s the best strategy for trading the EUR/USD?

  The most liquid forex pair in existence offers some very simple, yet successful trading strategies. Using support and resistance levels is extremely important to these strategies, which take advantage of those important price levels. Both support and resistance levels can be used as a way to locate areas where price can either be expected to pullback, leading to a correction, or to breakout, leading to a new rally higher or sharp drop lower. Traders who can identify these areas for pullbacks and breakouts will soon find this simple strategy to give them great success in trading the EUR/USD.