The Euro/US Dollar is an extremely popular forex trading pair and this is the reason why trading opportunities are difficult to achieve. This does not prevent many traders from choosing this pair. It is the most liquid international pair and it offers very low spreads, but the liquidity is the attraction because you will not have a problem if your wish to purchase or get rid of the pair. The constant activity in the pair makes the market volatile which leads to profits for traders.
Newcomers to the forex trading market can benefit by trading this pair due to the combination of liquidity and volatility.
The US Dollar and Forex Trading
The international finance world has a special place for the US dollar in its hub. It is looked upon as the international reserve currency which prompts many international transactions to be finalised in this currency. This makes the exchange rate extremely important for large corporations. Many of the global central banks hold massive amounts of US dollars as their foreign reserve. Some smaller countries choose to fix their currency to the US dollar. The US dollar is used to fix the price of gold and other precious metals. This implies that each time a country purchases or disposes of a commodity, it has the need to purchase or dispose of US dollars.
This popularity extends to the forex trading market and newcomers to the market should learn as much as they possibly can about the US dollar. You need to understand what drives the US market and its economy to try and predict the direction of the movement in this currency.
The Euro and Forex Trading
The European Union can be viewed as the biggest economic region globally. It boasts a GDP of more than $13 trillion.
This currency is used by 16 countries within the European Union. There are often disputes amongst these governments about the monetary policy and future of the Union. When this takes place, the Euro normally declines as is to be expected.
Influences on EUR/USD
The strength of one country’s economy to the other is one of the main influences on this pair. If the EU economy is growing at a faster rate than the US, the euro will strengthen. Likewise, if the US has a faster growing economy, the dollar will strengthen. The interest rate level in each country is a good measure to go by. When the US rates are higher than those in the EU, the US dollar will increase in value. If the interest rates in the EU are higher, the euro will strengthen against the dollar. However, this is not the only factor that predicts the possible movements in the currencies.
In cases where there is political upheaval in any of the European Union countries, this currency pair will be affected. The euro was introduced to the world during 1999, so is still a relatively new currency and not fully trusted by some investors. Some international economists view this zone as a test project for economic and monetary policy.
There are often differences of opinion among the countries that this zone is comprised of. In cases where the conflict appears to be serious, the euro is immediately affected in a negative way and this often causes it to decline in relation to the US dollar.
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