EURUSD Trading

The EURUSD is the ticker for the euro dollar exchange rate. It is one of the majors in Forex, and because it represents the world’s largest economies and trading blocks, it is also the most liquid pair. EUR/USD is the world’s most liquid currency pair, and offers traders, who wish to buy or sell it, consistently low spreads throughout. It is the most recommended pair to trade for all types of traders, even newbies, because of the unique combination of liquidity and volatility.

Reading the EURUSD Price

Like any other currency pair, the EURUSD represents the price of the base currency (euro) in relation to the quote currency (US dollar). Thus, when the price of the EURUSD pair is rising, it means that the euro is strengthening over the US dollar; and when the price of the EURUSD is falling, it means that the value of the euro is declining relative to the US dollar.

The price quote of the eur/usd essentially represents the amount of dollars it would take to acquire one euro. So, for example, when the price of the EURUSD is 1.20, it means that to buy 1 euro, one would have to pay 1.20 US dollars.

History of the EURUSD

Because the EURUSD is the most popular currency pair in the Forex market, it is hard to imagine that some 20 years ago it was not around. The EURUSD has only been around since the 1st of January 1999, when the euro came into existence after 19 European countries adopted a single currency. The EURUSD started with the value of 1.1795 and fell to an all-time low of 0.8225 in October 2000 as countries were still adjusting to the common currency. It started appreciating as adoption became widespread and posted an all-time high of 1.6037 on July 2008 during the global financial crisis.

In financial circles, the euro-dollar pair is referred to as Fiber, while the other major pair, the GBPUSD, is referred to as Cable. As the euro is much newer, traders decided to make an ‘improvement’ to the ancient US-UK telecommunications cable, to a much newer ‘Fiber’ cable.

Major Bodies Influencing the EURUSD

Interest rates are the major factor influencing the EURUSD. As such the ECB (European Central Bank) and the Fed (US Federal Reserve Bank) are the major bodies that EURUSD traders track for a broader fundamental view of the pair. The Fed releases the Federal Funds rate eight times a year, while the ECB does so monthly. The actual rates are important, but as well, traders watch out for the accompanying rate statement which provides a clue of the future policy direction of the two most powerful Central Banks.

Employment numbers also impact the EURUSD significantly. In the US, the Nonfarm Payroll numbers are released by the Bureau of Labor Statistics on the first Friday of every month, with this data usually providing so much volatility for the pair. In Europe, consolidated employment numbers for the region, as well as those of major economies, such as France and Germany, also impact the price of the EUR/USD greatly.

EURUSD Correlations

The EURUSD has always posted a near perfect negative correlation with the USDCHF, which means that the Fiber has almost always risen when the USDCHF is falling. On the other hand, EURUSD has always shown a positive correlation with the GBPUSD. These correlations are near perfect, and largely because the pairs share the US dollar, as well as European heritage. Still, correlations do change, and traders must always trade them carefully, doing the necessary analysis.