Euro, number two in forex trading

The euro (EUR) came second to the US dollar (USD) in terms of global liquidity, followed by the Japanese yen (JPY) and the pound sterling (GBP). Forex traders speculate on EUR strength and weakness through currency pairs that establish real-time comparative value. Although brokers offer dozens of related crosses, most clients focus on the six most popular pairs:

– US Dollar (USD) – EUR/USD

– Swiss franc (CHF) – EUR / CHF

– Japanese Yen (JPY) – EUR // JPY

– British Pound (GBP) – EUR/GBP

– Australian Dollar (AUD) – EUR/AUD

– Canadian dollar (CAD) – EUR/CAD

The EUR trades continuously from Sunday evening to Friday afternoon in the US, offering significant profit opportunities. However, volume and volatility can vary greatly in each 24-hour cycle, with the bid/ask spreads of the less popular pairs widening during quiet periods and narrowing during active periods. While the ability to open and close positions at any time marks a key advantage of forex, the majority of trading strategies are developed during active periods.

Many forex traders focus their full attention on the EUR/USD cross, the most popular and liquid currency market in the world. The cross maintains a tight spread over the 24-hour cycle, while multiple intraday catalysts ensure that price action will set up trading trends in both directions and along all time frames. Long and short-term swings also work extremely well with classic range-bound strategies, including swing trading and trading channels.

Euro price catalysts

The best time to trade euros coincides with the release of economic data, as well as the opening hours of stock, options and futures exchanges. Planning ahead for these data releases requires two-sided research as local (eurozone) catalysts can move popular pairs with the same intensity as catalysts in each of the other currency pairs. In addition, US economic data may have the greatest impact on all currencies due to the predominant importance of the EUR/USD pair.

Furthermore, EUR crosses are exposed to economic and political macro events that trigger highly correlated price action across equity, currency and bond markets around the world. China’s devaluation of the yuan in August 2015 provides a perfect illustration. Even natural disasters have the power to generate this kind of coordinated response, as evidenced by the 2011 Japanese tsunami.

Economic releases

Monthly economic data for the euro area are usually released at 2 p.m. Eastern Time (ET) in the United States, or 8 a.m. CET. The time segment from 30 to 60 minutes before these releases and one to three hours afterward highlights a hugely popular period to trade EUR pairs as the news will affect at least three of the five most popular crosses. It also overlaps with the run-up to the US trading day, drawing in significant volume from both sides of the Atlantic.

U.S. economic releases tend to be released between noon and 2 p.m. 08.30 and 10 am ET and also generate extraordinary EUR trading volumes, with high odds of strongly trending price movement in the most popular pairs. Japanese data releases receive less attention as they tend to come out at a later time. 16.30. and 22:00 ET, when the euro area is in the middle of the sleep cycle. Nevertheless, the trading volume of the EUR/JPY and EUR/USD pair can increase sharply around these time zones.

Opening hours for euro and shares

The schedules of many EUR traders roughly follow exchange times, centering their activity when the Frankfurt and New York stock markets as well as the Chicago futures and options markets are open for business. This localization generates a spike in trading volume around midnight on the U.S. East Coast, continuing throughout the night and into the U.S. lunch hour when currency trading can drop sharply.

However, central bank agendas are shifting this cycle of activity, with forex traders around the world staying at their desks as the Federal Reserve (FOMC) is scheduled to release at 14.00. ET rate decision or the minutes of the previous meeting. The Bank of England (BOE) issues its interest rate decisions at 07.00 ET, while the European Central Bank (ECB) follows at 07.45 ET, with both releases taking place at the center of EUR volume activity.

Seven factors affecting the euro exchange rate

To understand the factors that influence the euro, we first need to find out what this currency actually is and how its exchange rate is determined overall.

The euro is the official currency of the European Union, which comprises 19 Member States. It is also among the most liquid currencies in the world. According to ISO (International Organization for Standardization), it is denoted as EUR or by the symbol €. The European Central Bank (ECB) is the authority that regulates this currency.

What determines the exchange rate

A number of factors (economic, political, environmental, etc.) influence the exchange rate. All are intertwined. One of the most important factors is central bank action. These authorities take the relevant interest rate decisions to adjust economic indicators and exchange rates.

Three types of exchange rates are known. These are:

1. fixed exchange rate, an officially fixed proportion of currencies of different countries. It is based on parity between national currencies.

2. floating exchange rate, a freely changing exchange rate, which depends on supply and demand.

3. flexible (or floating) exchange rate that depends on the government, which can impose restrictions on the import and export of foreign currency. This type of exchange rate was legitimized at the Jamaica Conference in 1976.

Key factors affecting the price of the euro

The euro is the second most popular currency in the world. In addition to its popularity, the euro retains its position in the foreign exchange market, which is why it is important to understand what influences its value.

1. the European Central Bank

This independent authority is responsible for controlling the exchange rate with various financial levers, the most important being the interest rate, which regulates inflation and the rate of economic growth.

The ECB decides on the exchange rate and changes it by analyzing the amount of money in circulation, growth data and indices associated with changes in consumer prices in the EU.

The price of one euro is determined by the increase or decrease in the interest rate set by the ECB. The higher it is, the stronger the euro grows.

2. The relationship between the euro and the US dollar

Events related to the US dollar have a direct impact on the euro, causing its price to fluctuate. Demand for the US currency, political or economic changes in the US constantly affect the euro. Negative events lead to a rise in the price of the euro, while positive trends against the US dollar contribute to the decline in the value of the euro.

3. Stability in Europe

The euro is the official currency of 19 European countries, which means that the price of one euro depends on the economic and political stability of these countries as well as the EU as a whole. Below are the factors you should pay attention to when analyzing the EU’s economic and political environment:

– Inflation in the euro area

– Index of working life and income

– Economic climate in each EU country, but particularly in Germany.

– Dynamics between exliort and imliort

– Publication of indices and interest rates

– Stability of the banking system

– Statements made by representatives of political forces and leading politicians and officials in Europe.

4. Analytical authorities

Forecasting is a powerful tool that can wreak havoc on financial markets. That said, it stands to mention that their impact is usually short as all data needs to be confirmed immediately, and if this doesn’t happen, the market will quickly stabilize.

However, forecasts of further developments in the euro area, the exchange rate, the actions of critical political and economic actors can affect the euro and its price. These forecasts could trigger widespread panic, buying and selling of the currency and cause euro instability.

5. Macroeconomic statistics

These statistics are determined by the indicators below:

– Gdli

– Unemployment rate

– Industrial production

– EMU on inflation challenges

– Trade balance

Note

To ensure a stable exchange rate for the euro, the economic indicators mentioned above must be positive.

6. the stock market

European stock market indices help determine trends in euro area economies. They allow you to identify the causes that affect the euro.

Stock market prices are one of the indicators of changes in the exchange rate. A steep decline or increase in the cross rate with the Japanese yen could change the direction of movement of the EUR/USD pair during the European trading session.

Therefore, make sure to closely follow the EUR/GBP and EUR/CHF currency pairs during the European session. A large number of trades can dramatically change the price of the euro. The value of this currency depends to a large extent on the balance of power in the market.

7. Political climate

The price of one euro is the result of political decisions and relationships between many countries. Decisions taken by the EU, its leaders, partners, foundations and organizations are what affect the stability of the euro.

It is not uncommon for the ECB and national banks in leading European countries to fail to reach an agreement on a particular policy issue, leading to the destabilization of the euro.

Let’s remember the European Union’s decision to overcome the debt crisis faced by the peripheral countries of the euro area. The lack of a consistent approach led to a depreciation of the euro in 2011.

Given the aforementioned, it is safe to say that the euro crisis is influenced by a variety of factors determined by the key players, such as countries, banks, political leaders, analytical agencies and stock exchanges.

If you trade the euro, you need to keep an eye on the trends and analyze them. Keep in mind that some factors can be artificially created to destabilize the currency market. So stay focused and act prudently!

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