We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Bullish
USD/JPY
Bullish
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Bitcoin
Bullish
More View more
Real Time News
  • As the global economy continues to contract, the risk of geopolitical threats undermining financial and economic stability are rising, leaving the door open to violent volatility. Get your market update from @ZabelinDimitri here:https://t.co/2HEzqPobvA https://t.co/k13SwJmbRm
  • RT @IGSquawk: We're currently pricing #GBPUSD at 1.2852 and #FTSE at 7129.2 That's a drop of 1.18% from Fridays close for GBPUSD and 0.22%…
  • #DidYouKnow a #Doji candlestick signals market indecision and the potential for a change in direction. What are the top five types of Doji candlesticks? Find out: https://t.co/c51s3IBcEu https://t.co/K6W9X4v8XD
  • The $NZD may be carving out a near-term bottom against its US counterpart but scope for gains seems limited within a broader downtrend. Get your technical analysis from @IlyaSpivak here: https://t.co/7bsVuSyWMn https://t.co/DsmNYKk8v3
  • Can you trade with the joy of missing out (#JOMO)? Find out how you can turn your #FOMOintrading to JOMO here: https://t.co/G5H26NXZQe https://t.co/pVdKUPzvmk
  • RT @PaulBrandITV: It’s likely that this will end up in court on Monday. The case in the Scottish courts may well consider that this doesn’t…
  • RT @PaulBrandITV: BREAKING: Tonight the PM has sent this letter to EU requesting an extension to Brexit. Wording is copied and pasted from…
  • RT @FactSet: $SPX is reporting a (Y/Y) decline in earnings of -4.7% for Q3 2019, which would mark the 3rd straight quarter of (Y/Y) earning…
  • RT @MehreenKhn: 🔔🔔 Here is the letter Boris Johnson has sent to Brussels tonight saying an extension would "damage" interests of the EU and…
  • What is #forex time frames and how can it be applied to multi-time frame analysis. Find out here: https://t.co/uEmAGW4ckP https://t.co/f4RrjSQK8y
Euro: What Every Trader Needs to Know

Euro: What Every Trader Needs to Know

2018-11-25 11:00:00
Dimitri Zabelin, Junior Currency Analyst
Share:

What is the Euro?

The Euro (EUR) is the official currency of the Eurozone, a monetary union with 19 out of the 28 member states of the European Union (EU). It was established in 1999 with the intention of creating a single economic block that shared a common currency among all of its members.

The European Central Bank (ECB) is the steward of the euro and uses monetary policy to drive inflation and interest rates to desired levels that also support economic growth and job creation in the EU. In 1998, the ECB quantitatively defined its official mandate of price stability as maintaining inflation rates below but close to 2% over the medium term. In July of 2012, ECB President, Mario Draghi, famously added the safeguarding of the euro as an unofficial objective, saying policy officials will “do whatever it takes” to prevent its failure.

The establishment of the euro is part of the broader European integration project that is meant to build a politically unified regional entity that is tied together through economic strings. The EU seeks to create a “single market” by guaranteeing the free movement of goods, capital, services, and labor, the so-called “four freedoms”.

The EU eventually became the second largest economy in the world with a consumer base of over 500 million with the euro rising to the rank of being the second most traded currency on the global market. Therefore, owning the euro, allows traders to have exposure to the EU’s market and possess a highly liquid currency.

Build confidence in your Euro trading strategy with our free guide!

What moves the EURO?

I. Eurozone Political Risk

Risk in political stability plays a significant role in influencing the euro price trend. Leading up to the Great Recession in 2008, a debt crisis was brewing in Europe. When the economic shock hit Europe, a few Southern European states (such as Greece) who were already burdened with high levels of debt, became a political and economic liability for the whole union.

There were doubts on the ability of these states to pay back their debt, so monetary authorities such as the ECB and IMF issued bailouts to these states in an effort to prevent a regional economic collapse. Even though loans were issued, the economic impact of this crisis has had broader political implications that have exerted a significant influence on the price of the euro.

The recent emergence of Eurosceptic nationalist movements across Europe has caused the currency to depreciate as markets became uncertain as to whether the Eurozone would be pushed into a deeper crisis than before.

Impact of Eurozone Political Risk on the Euro

II. ECB Monetary Policy

The ECB also impacts the euro price trend. As the custodian of the euro, the ECB is tasked with maintaining price stability and maintaining inflation rates below but close to 2% over the medium term. The central bank can use conventional policy instruments such as interest rate hikes/cuts, and open market operations among other monetary levers to achieve their target. The ECB can also use non-standard policies such as Quantitative Easing (QE) and asset purchase programs that emerged after the subprime mortgage crisis in 2008.

The central bank also holds press conferences where markets can approximate the direction of interest rate hikes or cuts based on hawkish or dovish rhetoric from ECB officials. Additionally, indicators of economic activity such as Eurozone GDP, German and French CPI reports, along with PMI surveys, have a noteworthy effect on the euro.

Unexpectedly positive or negative data from these various indices has a tendency to lead markets to speculate on potential hawkish or dovish shifts in policy from the ECB. Consequently, this market-driven speculation often leads to price fluctuations in the euro.

Impact of ECB Policy on the Euro

Trading the EURO

The most popular currency to pair with the euro is the US Dollar (EUR/USD). Both currencies represent the largest economic blocs with most of the world’s economic activity facilitated in euros and dollars. The sheer volume of transactions done in these currencies makes them highly liquid.

As a result, a large amount of forex trading will involve the euro and the various other currencies it pairs with. In 2016 the euro commanded over 31% market share of overall FX turnover. When paired with the USD, the EUR/USD currency pair becomes one of the most liquid financial instrument in the world. Because of the euro’s high liquidity, the bid-ask spread can be one of the lowest out of any currency pair.

Additionally, the wide range of available high quality economic and financial data allows traders to build robust and well-informed euro trading strategies. This will enable traders to analyze the various economic factors that may trigger a market movement and impact the euro price – allowing them to strategize accordingly.

Commonly traded EUR currency pairs:

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter

EURO TRADING RESOURCES

OTHER CURRENCY PROFILES:

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.