Video Script: Discover trading EURUSD (EURO vrs US Dollar)
Thanks to modern technology and air travel our world is smaller. As you travel you exchange your money for another currency which results in a difference in value. How can there be such a difference in value between one currency and another and is it possible to profit from the difference?
Hi I’m James join me today as we look at the most traded currency pair in the forex market which is the EURO VS USD. We hope that by the end of this video you will have a better understanding of what to look for when you are trading EURUSD.
Now the first question is, what makes a difference between the value of this currency to this one (holds up a euro note and a usd note). The answer is often that it is dependent on the strength or the potential strength of the country’s economy. As like everything, economies can change.
The EUR/USD over the last 10 years is traded as high as 1.6008 on the 6th June 2008 and has hit a low of 1.0375 on the 1st December 2016.
So why is trading EUR/USD so popular for traders?
Europe and the United States are the two largest economies in the World. And though the USD remains the world number one reserve currency, EURO’s dramatic rise to prominence made it the world’s second most common reserve currency.
So, what do you need to be aware of when trading this pair? First, learn the time periods that can affect this pair. London opens from 3am EST. This is the world’s largest FX centre bringing in massive volumes to the market. Then the crossover happens when New York opens for business at 8 am EST which may cause a lot of volatility. When London closes at 12pm EST the activity starts to drop as volumes decrease.
In fact, the average pip movement per trading session for EURUSD is for New York 92 pips, 76 pips during the TOKYO session and 114 pips in London.
Now, Europe and the United States are the two largest economies in the world. It’s a good idea therefore to be aware of the interest rate disparity between the Europe Central Bank(ECB) and the US central Bank (FED) as it can bring movement to this pair.
If you have intervention from one of the central banks it can weaken one related currency against the other.
As we have said, it is often dependent of the perceived strength of those countries or in this case block economy. So be aware of the EUROZONE which is made up of 16 other countries. Look for relevant events that have been occurring such as those in Greece and Italy.
When it comes to the Eurozone, it is important to keep an eye on the following economic indicators coming out from Germany, the biggest economy in Europe:
- Real GDP
- Industrial Production
- Unemployment rate
- ZEW Indicator of Economic Sentiment.
At the same time, you need to be aware of the economic indicators being released from the United State. All of which can be found on the financial calendar.
Be aware that unlike the USD which is known as a safe haven, the EURO is seen as a riskier asset, so you need to assess if the market sentiment is indeed risk on or risk off.
Because of this you may also see that the EURUSD is correlated in a negative way to the USD/CHF which is another safe haven whilst relating to the GBP/USD (Risk) in a positive manner.
In summary, here are the things you need to be aware of when looking to trade the EUR/USD.
- Trading times that present the most volatility.
- Interest rates and policies from the ECB and the FED.
- Headlines relating to countries in the EUROZONE block
- Economic indicators from the EUROZONE, United States and Germany.
- And the market sentiment, is there a risk appetite?
Thanks for watching – I hope you found this video informative. Join me next time when I look at the SP500.
Till then, you trade EURUSD safe!