Get the Best Forex Rates for EUR/USD | Expert Analysis & Tips

Instrument description

The Foreign Exchange market, also popularly known as the Forex market, is the biggest financial market due to its massive trading volume. According to a recent survey, transactions worth £4 trillion happen every single day in the Forex market. The majority of the Forex trading is done in currency pairs known as the 'Majors' that includes the U.S. Dollar (USD), which is also the most traded currency. The USD is followed up by EUR (Euro), GBP (Great Britain Pound), EUR (Euro), and JPY (Japanese Yen), and together these make for the four most traded currencies. Other popular currencies include CAD (Canadian Dollar), CHF (Swiss Francs), AUD (Australian Dollar), and NZD (New Zealand Dollar).

The EUR/USD is the most prominent currency pair because it represents two of the most prominent economies of the world and made up 24% of the Forex transactions in 2019. The EUR/USD pair contributes to more than 50% of the total Forex transactions across the globe. In the currency pair EUR/USD, the Euro is the base currency, while the USD is the quote currency. The base currency is the currency you intend to buy or sell while quote currency refers to the price you have to pay to buy one unit of the base currency.

The EUR/USD represents how many Dollars will be required to buy a single Euro. In the Forex market, trading the EUR/USD usually means 'trading a Euro.' The traders usually buy one currency and sell the other. The constant change in the exchange rate happens due to many factors such as government policies, economic stability, and supply and demand of currency pair.

For example, the current exchange rate or quote of EUR/USD is 1.12, which means one Euro is equal to 1.12 USD, or in other words, you need to pay 1.12 USD to buy 1 EUR.

History of GBP/USD Currency Pair

The Euro currency originated due to the Maastricht Treaty in 1992 but was officially introduced as a common currency in European countries in 1999. The Euro started circulating in the member countries on January 1, 2002, and was recognized as the accepted currency all across Europe. The Euro is the official currency of 19 (known as Euro-Zone) out of 27 countries in Europe. The European Union (E.U) included 28 countries, but the U.K. officially left the E.U in January 2020, following a public referendum in 2016 called the 'Brexit' where 52% of the population voted to leave the E.U.

The Euro is probably the newest of all the currencies as was introduced in 1999, but it has enveloped nearly the entire European region, the currency became a major player in Forex trading and is right behind the U.S Dollar when it comes to trading volume and liquidity. The value of Euro was impacted by the global recession and crisis from 2008 to 2014, the EUR depreciated, and the USD increased in value also due to high-interest rates. In the following years after the crisis, the EUR/USD pair saw many significant price swings, which were caused by numerous financial factors and political events.

The U.S Dollar has always been recognized as the global currency and the world's first reserve currency. The U.S Dollar was introduced and made official currency by U.S Congress in 1792. The U.S Dollar represents the largest economy of America and is paired with all the major and minor currencies of the world. But the U.S Dollar pairing with the Euro is like a gold standard for all the traders and investors who look for an opportunity to try to profit from it.

The Euro-Zone countries share a strong diplomatic and trade relationship with the U.S. According to statistics, the U.S imports 10% of Eurozone's total exports. In comparison, the Eurozone imports 19.2% of total exports of the U.S. The all-time maximum value for the EUR/USD pair was 1.6038 in July 2008 and the lowest value of 0.8231 in October 2000.

How to Trade EUR/USD Pair

The EUR/USD pair is the most commonly traded pair, and the high trading volume means high liquidity, tight spreads and large trades can be made at minimum cost. The EUR/USD pair is so widely traded across the world that there are less frequent ups and downs, as seen with other currency pairs.

One option among others to trade EUR/USD is by trading CFDs (Contract for Difference), which is a derivative trading product and allows traders to speculate on the price movements . Traders have the option of using leverage, which means with a small initial deposit, they can have a larger market exposure. The larger volume and liquidity allows traders and investors to potentially magnify the profits, but due to leverage there are chances of significant losses, but a risk management tool such as stop loss can be implemented to try and reduce high losses.

With CFDs, a trader can trade in both directions, which is either go long or short to try to profit. For example, while trading EUR/USD, if you think in the coming days, the Euro will increase in value and USD will depreciate, then you will Buy (go long). Similarly, if you believe the U.S. Dollar will get strong, and EUR will weaken in the coming days so you will Sell (go short).

How to Read Price Change in EUR/USD Pair

The price chart is one of the essential tools used by technical analysts and investors to read different financial instruments such as stocks and currencies. In the price chart for a stock, the indicated price shows the price of the stock while the price listed in the currency chart shows the exchange rate of two currencies. A directional indicator shows the base currency.

For example, a trader takes a EUR/USD currency pair, he takes a long position when the exchange rate is 1.3, and when it rises to 1.5, the Euro strengthens. At the same time, the Dollar weakens, but now he would require 1.5 extra Dollars to buy the same Euro, which will further weaken the Dollar.

If we see the price charts, the EUR/USD pair is always actively traded with a stable pattern. The EUR/USD reached the highest value of 1.14398 on March 9, 2020, but suddenly a steep downward trend is noticed as the EUR/USD pair recorded the lowest value of 1.068 on March 19, 2020. The regular ups and downs are noticed since March, and currently, the EUR/USD pair trades on 1.1282.

If the EUR/USD rate increases, it means that the Euro has gained in value as compared to U.S Dollar, and similarly, if the EUR/USD declines, it shows that the U.S Dollar has gained in value and Euro has depreciated. If we consider the last five years, then the all-time high value for EUR/USD pair was 1.17 in August 2017 and an all-time low of 1.04 in December 2016.

The highest price that a trader is prepared to buy is known as the 'Bid Price,' while the lowest price that a trader is looking to sell is called the 'Ask Price.' Suppose the trading price of EUR/USD is 1.1277/ 1.1276, which means that 1.1277 is the highest price that a trader is willing to buy Euro compared to Dollar. Consequently, 1.1276 is the lowest price a trader is ready to sell Euro against the Dollar.

What causes price change in the EUR/USD pair?

As being the leader in currency pairs, the EUR/USD pair is influenced by many factors that can be examined through fundamental and technical analysis. The European Central Bank (ECB) and U.S Federal Reserve Bank, known as the Fed, play a crucial role in managing various economic aspects such as interest rates, inflation, employment rate, and devising suitable monetary policies to be implemented.

The currency with the higher interest rates will attract more traders and investors as it would give a profitable return on the investment. For example, if the Fed has set higher interest rates, then the U.S Dollar will surely appreciate in front of the Euro. The Fed can intervene in the open market transactions to make the U.S Dollar stronger, and the exchange rate of EUR/USD could decline as the USD strengthens in value. The economic crisis in Euro-Zone would also negatively affect the value of the Euro and weaken its value.

The Board of Governors of Fed meet regularly to not only announce interest rates but issue monthly financial reports that give a fair reflection on the economic stability of the country, and the financial data not only impacts the individual price of the U.S Dollar but also it's pairing with Euro and other currencies. The ECB also convenes regularly and take steps to ensure the stability of the Euro. The ECB manages the monetary policies and implements rules to ensure consistency in value of Euro so that the buying power of the Euro is not diminished due to inflation. On the contrary, the focus of the Fed is to keep inflation around 2% and the unemployment level to the lowest.

The main macroeconomic factors that impact the quote of EUR/USD pair are

• The interest rate differential between the ECB and Fed,
• Gross Domestic Product (GDP)
• Inflation
• Employment rate

Apart from the fundamental and technical factors, both traders and investors should know about the ever-changing political scenarios and developing events. Staying updated to the latest financial and political news can help to know about market sentiments and accurately predict the price movements and direction of the market. The quote of EUR/USD pair is also affected by the value of other major currencies such as GBP, JPY, CAD, and AUD.

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