How to Trade EUR/USD Currency Pair?
History of the EUR/USD pair
The euro (EUR) is quite a young currency, “born” in 1999. The common European currency replaced a whole range of national coins: the Deutsche Mark, the French franc, the Italian lira and many others. Hence, one of the peculiarities of the euro is its sensitivity not only to macroeconomic statistics but also to the news from various EU countries.
The new currency started circulating without cash on January 1st, 1999; coins and banknotes appeared on January 1st, 2002. In terms of usage for international payments, the euro is second to just the US dollar. It is also the second popular (alongside the USD) world’s reserve currency. At the official start of trades, the EUR/USD exchange rate was about 1.1800.
Since the beginning of trade in 1999, the rate has changed many times. For a couple of the first years, the perspectives of the euro remained vague, and the quotation was declining stably, reaching the minimum of 0.8200. Then the pair was growing for seven years, reaching its all-time high of 1.6000 in 2008. Later, the pair corrected significantly due to the banking crisis and various issues in the Eurozone. Currently, the pair is trading near 1.1300.
Characteristic features of the EUR/USD pair
EUR/USD is a major currency pair, characterized by increased liquidity. This is in no way surprising because it unites two main reserve currencies – the dollar and euro. These currencies make most of the volume of daily trades in Forex (about 20% of the overall volume).
The behavior of EUR/USD is some sort of an indicator demonstrating and comparing the economic situation in the US and Europe. If the US economy grows stably while the EU has some troubles, the EUR/USD pair falls. Conversely, if the USA slows down while the EU boasts good results, EUR/USD grows. Look at the main trading characteristics of the pair:
- Active trading time: 24 hours a day except weekend; most active during the European and American trading sessions: this is the time for the main part of trades and important changes in EUR/USD.
- Volatility: medium. At the publication of certain news, the EUR/USD pair still may swing by 100 points and more; however, on backtests, the average daily volatility of the pair is about 80 points.
- Spread: this is one of the main advantages of the EUR/USD pair. Thanks to super-high liquidity, the spread is minimal. On popular ECN accounts, spread normally remains under 1 point.
You can find spreads for all instruments on our website in the section "Contract Specifications"
Factors influencing EUR/USD pair
The EUR/USD rate demonstrates the relation of two major economies on the globe – the US and EU. Hence, important economic and political news from both the States and Europe influence the rate of the pair. These factors are called fundamental; however, there are also technical ones. Let us have a look at the factors of both types.
- Important economic data from the US and EU. They would be:
- Changes in the interest rates
- Unemployment rate
- Nonfarm Payrolls
- GDP growth rates
- Indicators of inflation (CPI, PPI)
- Industrial Production index
- Retail sales
- Trade Balance
- Consumer Confidence index
- ISM, IFO
- Speeches of first persons: press conferences of the heads of the ECB and Fed, speeches and comments of leading politicians. For example, Trump’s twits can provoke serious movements of the pair.
- Political events: changes in the government, elections, disturbances, domestic political instability (such as Brexit).
- Force majeure: emergences, natural disasters, technical disasters, terror acts, epidemics.
The “Economic calendar” on the RoboForex website will help you keep track of important news and economic indicators.
- The current trend: an actual trend is vital for trading. In an uptrend, buys are preferable; in a downtrend, you better sell; in a range, you may trade in either direction from the borders of the price range.
- Important support and resistance levels, which are historically created highs and lows on the chart. These are important landmarks for analysis and forecasts of further movements of the pair.
- Price patterns: different patterns of trend continuation or reversal from tech analysis; candlesticks and Price Action patterns.
3 ways of trading EUR/USD
There are several approaches to trading, and each trader chooses their style. Some use only one way, practiced and polished, while others blend in several trading methods, I would single out three ways of trading EUR/USD (these methods will also suit other major currency pairs):
- Trading by fundamental analysis: trades are made based on the analysis of fundamental information. This may be short-term news trading or long-term trading based on the changes in the interest rates.
- Trading by tech analysis: trades are made based on the analysis of the chart of the currency pair. You may use classical tech analysis as well as original methods (Elliott, Raschke, Sperandeo, Williams, Ross, and others). Price patterns, candlestick or Price Action patterns are also popular among traders.
- Trading by indicators: your trading is determined by the signals of your preferred indicators. You may use just a complex one or a system that includes several indicators. Based on the signals of indicators, automatic trading systems – expert advisors – are also created.
Personally, I like short-term trading on important news and using tech analysis (price patterns). Feel free not to limit yourself by just EUR/USD, there are plenty of other appealing currency pairs and financial instruments.
In terms of time spent on trades, trading may be:
- Intraday trading: this is trading without transferring your position to the next day. It is characterized by small Stop Losses and Take Profits, requires much time and iron discipline, available to small deposits.
- Swing trading: trades last from several hours to 2-3 days. SLs and TPs are larger, trading takes less time, and requires a larger deposit.
- Long-term: positions are held for several weeks. This style is more suitable for investors. You need much less free time for long-term trading but much more money on the deposit.
The EUR/USD currency pair is rather young; its trading life has just started. Regardless of its “young age”, the pair has easily become number one in terms of trade volume in Forex. Thanks to superb liquidity, availability, and a small spread, the pair enjoys legitimate popularity among traders. To get started, choose your trading method and practice on a demo account, then switch o a small real one.