EUR/USD Introduction
The US Dollar (USD) and Euro (EUR) are the official currencies of the US and the European Union respectively. The Federal Open Market Committee (FOMC) is a branch of the FED (Federal Reserve) that directs the monetary policy for the US and it leaves an impact on the value and perceived value of the USD. Similarly, the European Central Bank (ECB) is the central bank for the Euro Zone and leaves an impact on the EUR.
The EUR and USD form a currency pair known as EUR/USD. The most-traded currency in the forex market is the Euro Dollar and its value refers to the Euro-USD exchange rate. The value of 1 Euro and 1.2 US Dollars is not the same. Traders have also nicknamed this currency as Euro and Fiber. There are two opinions behind the reason for the nickname Fiber. Some say that it is because the GBP/USD pair has the nickname “Cable”. So, the opinion is that traders used old telecommunications cable before to connect the US and UK. Now, they have upgraded it to a newer fiber cable. Others say that the name comes because the Eurozone has the best optical fiber network in the world.
What moves EUR/USD?
The strength of the currency pair is unbelievable. While the US Dollar is the currency that most traders trade and most people in the world hold vastly, the Euro is the second most popular. The currency pair EUR/USD covers two of the main economies of the world” American and European. So, within the forex market, this pair has over half of the world’s total trading volume. The key factors that move this pair include:
US And Eurozone Economic Data (CPI, PMI, GDP):
Traders receive a huge amount of data every week from the economic calendar. The most important pieces of data among them are:
- CPI: CPI or Consumer Price Index is a significant factor in economic reports. The most important indicator of economic health is inflation, and it is measured by CPI.
- PMI: PMI is a great way for estimating the economic health that affects the strength of currencies. By taking this survey, traders can understand whether purchasing managers are being optimistic or pessimistic about the economy in the medium-term. This survey is very crucial because the data is used by central banks while formulating monetary policy.
- GDP: GDP is another vital data. It shows if the economy is strong and healthy. Traders can also see how strong it is.
You should not neglect the balance of payment when you are considering the most important economic reports. It shows the amount of money a country pays to other economies and also the amount it receives from abroad.
There are also plenty of other economic reports. However, the ones above are the most important and you should consider them as they bring more volatility into the market.
Federal Reserve (US FED) /European Central Bank (ECB): The major institutions that affect this pair the most are the central banks of the US and Europe. The ECB (European Central Bank) is under the guidance of Mario Draghi and the Fed (Federal Reserve Bank) is under Jerome Powell. These banks regulate the monetary policy, interest rates, strengths and weakness of the currencies, and money supply. The foreign exchange market follows every meeting of these central banks, as well as the speeches of the president and the chairman. It causes volatility in the forex market.
Political stability: The EUR/USD pair can have an impact on any political issue. For instance, Brexit, disasters in European countries, and elections in countries can have huge effects on the currency pair. We can also mention the statements of top politicians, unexpected election results, protests or currency war escalations.
Trading session: Trading session is also a very significant factor in liquidity level for the EUR/USD. Traders must know when they can have the pair with the highest volatility and when they most likely cannot trade it. Generally, they trade the EUR/USD pair slightly during an Asian session due to the most important economic data and events for EUR/USD that are released in the US and European sessions. At noon, when it is time for the traders to have lunch, this activity slows down. It again rises later when the US session begins. European traders close out their positions at 5:00 GMT and it is when liquidity leaves the market again.
The Conclusion
There are many reasons why it is a good idea to trade the EUR/USD currency pair. Firstly, everyone with leverage can access it. Moreover, due to their high daily volatility, they create many trading opportunities. You can trade five days a week and 24 hours a day. So, you can choose any time to operate the trade that suits you best. Furthermore, the Euro Dollar has strong liquidity. So, traders can avoid order execution problems. Lastly, the pair is available for trading without any restriction. There is no limitation regarding trading strategies or styles and there is also no minimum distance for Stop Loss.
