Live EUR/USD Chart
EUR/USD is the most popular currency pair in the forex market and offers the best spreads. The reason behind it is because the US Dollar is the most actively traded currency, while traded volume on the Euro is less than half of the US Dollar, the Euro falls second on the list of most actively traded currencies.
The Euro is often referred to as the “fiber”; the nickname derives from the usage of fiber in the paper that the euro is printed on. The EUR/USD pair is often referred to as simply “the Euro”, or “Euro Dollar”.
The Euro often carries an inverse correlation with the US Dollar, as the two currencies are the most popular and traded against each other. There is also a strong correlation with the Euro and British Pound, because of similarities in their economy, as well as the UK’s former membership of the European Union. After ‘Brexit’ the correlation may not be as strong.
The Swiss Franc also carries a strong correlation with the Euro, as the Swiss National Bank had committed in the past to maintaining a ‘peg’. Essentially the central bank would buy and sell in large quantities to manipulate supply and demand, in order to keep their currency as close to the Euro as possible. This plan failed in January 2015 and caused a sharp appreciation in the Swiss Franc. Correlations have not been as strong since then, but a general correlation remains between the two currencies.
What Factors Affect EUR/USD Rate?
The biggest factor in the evaluation of a currency is the interest rate differential. Generally, a higher interest rate will cause a currency to go up, and a lower interest rate will cause a decline. Often central banks will alter their interest rates with the intention of changing the value of their currency.
In 2014, the European Central Bank (ECB) cut their interest rates to drive the value of the Euro lower. A lower currency can help increase exports, as well as inflation. The central bank, in most cases, communicates their intentions prior to taking action. Communication from the ECB as well as a description of their target mandate can be found at www.ecb.europa.eu/. In the United States the Federal Reserve, often referred to as ‘the Fed’ controls the interest rates. Their target mandate, as well as press releases, can be found at www.federalreserve.gov/
When Does EUR/USD Experience Volatility?
The highest volatility in the overall foreign exchange market occurs during the overlap between the European and North American sessions. This is especially true for the EUR/USD as the most important economic releases tend to occur during the overlap.
The ECB tends to schedule their communication near the start of the North American session, and US data tends to be released ahead of the European close. There are European economic releases ahead of the North American open, but they do not tend to impact the overall trend as much, and in most cases only create fluctuations in the exchange rate.
The Federal Reserve schedules some of their releases after the European close, and on those days volatility is seen later in the day.
During the Asian session, there are minimal news flows that impact the pair, and the exchange rate will often retrace on lower volume. The session is known to create ranges, a directional move during the time would be rare.
Who Trades the EUR/USD?
Aside from regular market participants, the EUR/USD has gained popularity among scalpers and algorithmically driven trading programs. The appeal to the currency pair has been the low spread, allowing traders to trade in and out of the pair without having a substantial impact on their commission costs.
Because of the higher amount of technical traders driving volume, the pair is known to respect technical indicators more often than the rest of the majors.
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