Forex Trading Strategies for EUR/GBP | Get Started Now!

Instrument description

The Forex market is known to be the most liquid financial market and also quite volatile due to sudden price movements within the currencies that are exchanged. As the transactions are done within pairs, the Forex market consists of different categories such as ‘Major currency pair,’ ‘Commodity currency pairs,’ and ‘Cross currency pairs.’

The major pairs include EUR/USD, USD/JPY, GBP/USD, and USD/CHF that dominate the Forex exchanges and represent the most valued economies of the world. The commodity pairs include those currencies that are influenced by changing commodity prices and include AUD/USD, USD/CAD, and NZD/USD.

The cross pair are those currency pairs that do not include the US Dollar, and there are numerous such pairs, but the most popular ones include EUR/GBP, EUR/CHF, and EUR/JPY. The EUR/GBP depicts the relationship between the UK economy and the European Union (EU), where GBP represents the UK and EUR represents the EU. The cross pair of EUR/GBP is quite unique as it portrays the combination of the oldest currency (Pound) with the newest currency (Euro).

The EUR/GBP exchange rate tells traders how many British Pounds would be required to buy one Euro. The symbol for the Euro is € while the symbol of the Pound is £. For example, if the current EUR/GBP rate is 0.89, it shows 1 € equals 0.89 £, or it would take 0.89 Pounds to buy 1 Euro. The EUR/GBP is considered to be one of the significant currency pairs as it consists of two of the leading European financial markets. The pair is popularly called as ‘Chunnel’ which symbolizes the Chunnel or mostly known as Channel Tunnel that connects the UK with France and rest of Europe.

History of EUR/GBP Currency Pair

The EUR/GBP pair is very popular currency pair to trade in the Forex market, and both the GBP and EUR are included in the list of ‘Major’ currencies, but their pair is known as cross pair. In terms of trading volume, the Euro is second to the US Dollar and then followed by Japanese Yen in third and British Pound in fourth. The market share of the Euro is nearly 40% while the Pound has nearly 13%.

The Euro is a fairly new currency as it was established as the official currency of the EU on January 1, 1999, and was accepted by 11 EU countries except the UK. The UK became a member of the UK but kept the Pound as its national currency. On the official launch of Euro, the exchange rate of the EUR/GBP pair was recorded at €1.42=£1.00. The maximum EUR/GBP rate recorded was 0.9804 on December 29, 2008, while the minimum rate ever recorded is 0.5687 on May 1, 2005.

Euro was said by experts to become the next big reserve currency, but at the end of December 2000, Euro lost its pace, and the reason for constant fluctuations between the two currencies was said to be because of the political and economic relationship between the EU and UK.

The EU relationship with the UK was always a complicated one, and to further augment the relationship, the UK decided to leave the EU following a public referendum popularly known as the ‘Brexit’ in June 2016. The decision to leave the EU resulted in noticeable market fluctuations between the two currencies and impending trade balance and devaluation of Pound.

How to Trade EUR/GBP Pair

Both the British and Euro economies are interlinked with each other, as both originate from the European region. In the EUR/GBP pair, the Euro is the base currency, while the GBP is the quote currency. The market volatility and tight spreads make the EUR/GBP pair one of the favorite among the traders and also the fact that the cost of doing business is relatively low. The EUR/GBP trading is open 24 hours a day, but the time that the market sees most activity is from 06:00 and 16:00 (GMT).

As a trader, among other options you can trade the EUR/GBP pair using Contracts for Difference (CFDs), which gives the comfort of speculating on the price change of the underlying asset without the need to own the currencies. With CFDs, you can use leverage, which means by depositing a small amount in your trading account, you can trade a fairly larger position and increase the chance of maximizing your profits but also losses. But you may use a risk management tool such as stop loss to try to prevent significant losses.

Trading EUR/GBP pair also gives you the luxury to trade in both directions, which is either going long or short. If you believe that the Euro would gain momentum in the coming days as compared to Pounds, then you would go long or Buy Euro, and conversely, if you think that the Euro would weaken in front of Pound, then you would go short or sell the Euro.

How to read the Price Change in EUR/GBP Pair

The EUR/GBP pair is considered fairly stable, but the news concerning the UK and EU, on the whole, affects the price movements. The price action of the EUR/GBP pair is usually predictable and smooth without any sudden uncertainty. The EUR/GBP pair has a positive correlation with the EUR/MXN, CHF/SGD, and USD/SGD. The EUR/GBP also tends to have a negative correlation with the GBP/JPY, GBP/NZD, and GBP/CHF, where GBP is the base currency.

The ticker for the Euro exchange with Pound is denoted by EUR/GBP. According to the historical price range, the EUR/GBP pair saw a considerable low February 18, 2020, when it reached a value of 0.8283. But in recent months, there have been many swings, the market reached a high of 0.9380 on March 18, 2020, and currently, EUR/GBP pair stands on 0.6928. The Bid price or willingness of traders to buy EUR is 0.8918, while the Asked price or traders willing to sell EUR IS 0.8916.

What causes price change in the EUR/GBP pair?

In recent years one of the most formidable factor that influenced the value of EUR/GBP pair was the UK decision to leave the EU. In June 2016, a referendum or public vote was held where 52% of the population opted to exit from the EU, while 48% of people objected the decision to leave the EU. The UK officially left the EU this year on January 31, 2020.

The central banks serve an important role in determining the value of both the EUR/GBP pair. The Bank of England (BOE) is one of the oldest and efficient bank in the world and monitors the interest rates and monetary policy for the UK. The European Central Bank (ECB), on the other hand, puts efforts to maintain the price stability of the Euro. The function of ECB is to devise and implement the monetary policy for the EU member states and review the Foreign Reserves in the European System of Central Banks.

Every month both BOE and ECB release financial reports that help to determine the future outlook of the EUR/GBP pair and interest rates. The traders use the report for short term trading purposes, while the investors use the reports for long term forecast on the price movement. The two macro-economic factors that traders and investors have to keep a close eye when determining the price movements of the EUR/GBP pair are Gross Domestic Product (GDP) and Inflation.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.