How to trade the currency pair EUR/USD?

The Euro (EUR) is a young enough currency that appeared in 1999. The single European currency replaced a whole range of national currencies of the European Union countries: German mark, French franc, Italian lira, and others. Therefore, one of the peculiarities of the euro is its sensitivity not only to macroeconomic statistics of the entire Eurozone, but also to indicators of individual EU countries.

The European currency was officially introduced into non-cash circulation on January 1, 1999, and on January 1, 2002, banknotes and coins were put into cash circulation. By volume of use in international payments, the euro is second only to the U.S. dollar. It is also the second most popular (after the USD) reserve currency in the world. At the moment of the official start of trading, the euro dollar exchange rate was around 1.1800.

Since the beginning of trading in 1999, the euro dollar spot rate has undergone significant changes. During the first two years the perspectives of the Euro were unclear, and the rate had been declining, reaching a minimum of around 0.8200. Then the pair rose for seven years, reaching a historical maximum of 1.6000 in 2008. In the following years, due to the influence of the banking crisis and various problems in the Eurozone, the pair significantly corrected. Today, the EUR/USD pair is trading near the 1.1300 mark.

Characteristic features of the euro dollar

EUR/USD belongs to the major currency pairs (majors) and is characterized by increased liquidity. This is not surprising — the pair includes two major world reserve currencies: the USD and EUR. It is the euro/dollar that accounts for the largest volume of transactions in the daily Forex market (about 20% of the total volume).

The behavior of EUR/USD is a kind of indicator that shows a comparative state of the U.S. and EU economies. If the U.S. economy is steadily growing, while the EU has problems — EUR/USD falls. Conversely, if the U.S. economy is slowing down, while the Eurozone is performing well, EUR/USD will grow. Let’s analyze the basic trading characteristics of this pair:

  • Active trading hours — the pair is traded around the clock except weekends, it is most active during the European and American trading sessions. It is during this time the largest volumes of trades are held and the main movements of the EUR/USD pair are made.
  • Average volatility characterizes volatility — EUR/USD. When important data is released, the pair can make strong movements of 100 pips or more. But generally speaking, if you look at historical data, the average daily volatility of the EUR/USD pair is around 80 points.
  • The spread is one of the major advantages of this pair. Due to the high liquidity, spread on the EUR/USD pair is minimal. Usually it is less than 1 pip on popular ECN accounts.

What factors influence the quotes for the EUR/USD currency pair?

The EUR/USD exchange rate is the ratio of the currencies of the two largest economies in the world — the EU and the United States. Therefore, important economic and political news about the EU and the U.S. have a direct impact on the EUR/USD exchange rate. These influence factors are called fundamental ones, but there are also technical ones. Let’s consider both of them in more detail:

Fundamental Factors

Important economic indicators in the U.S. and the EU. Among the most important indicators that influence the pair’s rate in the currency converter online are the following:

  • Changes in ECB and Fed interest rates.
  • Unemployment rate.
  • Data on created jobs in the USA.
  • GDP growth.
  • Inflation indices (CPI, PPI).
  • Industrial production.
  • Retail sales.
  • Trade balance.
  • Consumer confidence.
  • Business sentiment indices (ISM, IFO).
  • Statements of the leaders — press-conferences of the heads of ECB and FRS, speeches and comments of the leading politicians from EU and USA.
  • Political events.
  • Force majeure.

For the latest news on the world situation, follow letizo.com

Technical factors

  • The active trend — an essential technical factor for trading is the presence of an active trend. In an uptrend (Uptrend) buying is preferable, in a downtrend (Downtrend) selling is recommended, in a sideways trend (Range) trading in both directions from the limits of the price range is appropriate. This can also be considered in the price converter pounds to dollars. 
  • Important support and resistance levels are historically established highs and lows on the price chart. They are important price points for analyzing and predicting a pair’s further movement.
  • Price patterns — various figures of trend continuation and reversal from classical analysis, candlestick patterns, Price Action patterns.

Conclusion

The currency pair Euro dollar is quite young; its trading life began recently — in 1999. But despite its youth, this pair has confidently occupied the first place by the volume of transactions in Forex. Thanks to its huge liquidity, availability and low spreads, the pair has gained popularity among traders. You should start by choosing the trading style that suits you and then try it out on a demo account, and then on a small real account. 

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