EUR/GBP Trading

EUR GBP is the ticker symbol for the euro and British pound sterling exchange rate. The pair represents the biggest economies of Europe (the United Kingdom and the European Union) that are massively interlinked. Smooth flow of capital between the economies has made the EUR GBP maintain a relatively stable price action compared to other forex pairs. The EURGBP is a ‘cross pair’ (no USD) and falls under the ‘minors’ group in the forex market. Minors have cheaper spreads compared to exotic currency pairs. The pair is also known as ‘Chunnel’, which is a reference to the Channel Tunnel that connects the UK and France (Europe). In the EUR-GBP forex rate, the EUR is the base currency, while the GBP is the quote currency. This means that at any given time, the price of EUR GBP pair represents the amount of British pound sterling it would take to exchange for one euro.

History of EUR GBP Trading

The history of the pound goes back to around 775 AD, which makes the currency, probably one of the oldest. The well documented UK colonial conquests cemented the pound’s dominance across the globe and at one time, it was the world’s primary currency, both in circulation and in reserve. But its current decimated form has its roots from 1971 when the Bretton Woods System collapsed. As of October 2019, the GBP is the fourth most traded currency in the world, and major events that have greatly influenced its value include: the 1992 UK exit from the Exchange Rate Mechanism, the 2001 tech bubble burst and the 2016 Brexit when the UK public voted to leave the European Union.

On its part, the euro is a 20th-century currency, having been only introduced in 1999. The euro operated as an ‘invisible’ currency in its first three years, used only as electronic money and for accounting purposes. Coins and notes would be first introduced in January 2002 in 12 European Union countries. The euro is now used in 19 out of the 28 EU countries. The major events that have influenced the value of the euro include the 2008 Eurozone recession and the 2015 €1 trillion Quantitative Easing program launched by the European Central Bank (ECB).

EUR GBP Trading Price History

The closeness between the two economies has allowed the EUR-GBP trading pair to retail a relatively stable and less choppy price action over the years. Still, the major political and economic events have always triggered significant price movement on the pair. The EUR GBP printed its all-time low of 0.5851 in October 2000, during the tech bubble crash. It drifted higher afterwards and achieved its all-time high of 0.9580 in December 2008 during the Great Recession. It then tumbled to lows of circa 0.6900 by July 2015 before the 2016 Brexit-inspired rally drove it to circa 0.9350.

Why Trade EUR-GBP?

• Price stability
  The EUR GBP is a relatively more stable currency pair, which means that its price action is fairly smooth and more predictable. This does not necessarily mean that it does not move, because its constituent currencies are among the top 8 in the world. Still, the pair is less choppy, which means that traders can employ aggressive trading methods, such as higher stake amounts, when trading online the EUR-GBP.

Major Bodies Influencing EUR GBP

• European Central Bank
  The ECB has a major influence on the euro, with maintaining price stability of the single currency being one of its main objectives. ECB also oversees the individual central banks of the different EU nations and sets the overall monetary policy in the Eurozone. Its monthly rate releases are watched closely by euro traders, including any involvement in the bond market, such as its QE (Quantitative Easing) programs.  
• Bank of England
  Like the ECB, the BoE releases rates and rate statements every month. BoE has also earned a reputation as one of the most active and efficient Central Banks the world over, and its actions have a great impact on the EUR GBP rate.
• UK Parliament
  Major GBP price changes have been triggered by decisions and sometimes by political headlines coming from the UK parliament. It is important to track decisions and discussions that have an impact on the overall UK economy as they are likely to have a significant impact on the EUR-GBP rate.
• UK Office of National Statistics (ONS)
  The ONS is responsible for producing and publishing important data that can be utilised for both social and economic policy formulation. For EUR GBP traders, it is prudent to track the releases of economic data, such as GDP numbers, as well as labour market statistics, such as the unemployment rate and wage growth figures.

For euro-based economic statistics, its key figure comes from Germany because the country as of October 2019 remained the largest economy in the region.

EUR GBP Trading Correlations

The EUR-GBP pair has a positive correlation with the USDSGD, CHFSGD and EURMXN. A positive correlation means that the prices of the EUR GBP and the correlated assets will tend to move in the same direction. The EUR-GBP also has a negative correlation with the GBPCHF, GBPJPY and GBPNZD. A negative correlation implies that when EUR GBP trends higher, the other assets will tend to go lower, and vice versa.

When to Trade the EUR/GBP

Theoretically you are able to trade any currency pair 24 hours a day Monday through Friday, but in reality, it makes more sense to constrain your trading to the hours when the pair has the most activity. In the case of the EUR/GBP that’s when European and British traders are most active. That makes from 6:00 to 16:00 GMT the best hours for trading this pair.

Trading the EUR/GBP

There are many different trading strategies and styles that can be used when trading EUR/GBP. Below we’ll look more closely at three of the most popular methods: Expert Advisors, Scalping, and Swing Trading.

Expert Advisors

Using expert advisors is a strategy that many traders like to employ in order to improve their trading. Those using the MetaTrader platforms can take advantage of these software plugins. There are literally thousands of Expert Advisors that have been created, and they have a multitude of functions, from delivering actual trading signals to identifying emerging trends. Traders are free to install any Expert Advisor in the MetaTrader 4 and MT5 platforms, whether it is one that they’ve coded themselves, or one that they’ve purchased from the MetaQuotes marketplace or elsewhere.

Scalping

As one of the more popular trading styles we see plenty of our clients following a scalping strategy when trading on the AvaTrade UK platforms. Scalping is well suited to the EUR/GBP since it is a fast-paced trading style, and the EUR/GBP can be a fast-paced currency pair. In scalping traders will move in and out of trades rapidly, looking to make many small profits throughout a trading session. One of the things that makes the EUR/GBP particularly well-suited to this style of trading is the low spreads offered on the pair. Average spreads of 1.5 pips mean that traders can profit from even small moves of 2 pips in their favour. Of course, larger moves are far better for profitability, but low spreads do make it easier to profit from the scalping trading style.

Swing Trading

Some traders find it far easier to trade larger market moves and medium to long-term trends. These are considered as Swing Traders and they look to make larger profits from moves that last for days or even weeks at a time. One drawback to swing trading is that holding positions overnight makes it necessary to pay swap fees on those positions, and that eats into profits. The good news when trading the EUR/GBP is that the swap fees are generally quite low and have even been positive from time to time, meaning traders get paid for holding their positions open overnight. Of course, some traders cannot accept swap fees for religious reasons, and for those traders AvaTrade UK offers Islamic accounts that are swap free and follow Sharia laws.

An Example Trading Strategy

While it is possible to use Expert Advisors or copy trading UK to follow the trades of others, the best trading strategies are those that you create yourself. When you build your own strategy, you know it intimately. You’ve done all the testing and you can feel 100% confidence in the strategy. The best way to create and test your own strategies is with a demo trading account that uses virtual cash rather than actual money.

One strategy that’s been found to be consistently successful for scalping EUR/GBP is a breakout strategy implemented at the open of the London market and using a combination of a 1-hour chart and a 5-minute chart. It’s meant to get into the trade early in the session as price is establishing its trend for the day. Trading in Frankfurt begins at 7:00 GMT and trading in London begins at 8:00 GMT.

Here’s the steps you’ll take to trade this EUR/GBP daily breakout strategy:

1. Open a chart of EUR/GBP on the 1-hour timeframe.

2. Locate the price bar on the chart that was printed for the hour between 6:00 and 7:00 GMT.

3. Draw parallel horizontal lines through the highest and lowest points of that bar, creating a tunnel.

4. Now switch to a 5-minute chart of the EUR/GBP.

5. Watch and wait for a 5-minute candlestick to open and close outside the channel you’ve created. No part of the candlestick should be within the channel.

6. If the candlestick closes above the channel place a market buy order.

7. If the candle closes below the channel place a market sell order.

8. Place a stop loss at least 5 pips outside the tunnel, not on the tunnel line.

Profit targets can be either three times your initial risk or at the previous swing high for buy orders and the previous swing low for sell orders. You can also use a trailing stop that moves to breakeven once you’ve made a profit equal to the amount risked. This is a very simple strategy that uses no indicators. It’s suitable for any level trader, even complete beginners. While it has the potential to capture the start of large daily moves, it is also vulnerable to false breakouts that get you stopped out when the market is not trending strongly

EUR-GBP FAQ

• What are the major influences on the EUR/GBP exchange rate?

  As is the case with nearly every currency the strongest influence on the exchange rate of the EUR/GBP comes from the interest rate policies of the two involved countries. Typically, the country with the highest interest rate will also have the strongest currency. Because the European Union and the United Kingdom are such close trade partners there are a number of other factors that can also have a strong influence on this pair. Those include GDP, employment, trade balances, consumer confidence, and press conferences from leaders of either side.

   
• What are some good ways to trade the EUR/GBP?

  There are a number of methods that can work well when trading the EUR/GBP pair. Scalping is one of the most popular strategies because it works well in this pair. The tight spreads offered in the pair are ideal for a scalping strategy. Swing trading is also a popular strategy for those who like to capture larger market moves and longer trends. Swing traders benefit from a low swap, which can even turn positive at times. This helps with trading costs. Some traders are even using automated robots and Expert Advisors to profit from the EUR/GBP.

   
• When is the best time to trade the EUR/GBP?

  This EUR/GBP pair is actually one of the best when it comes to timing trades, since the underlying countries lie in roughly the same time zones, and the markets are open at roughly the same time. It is best to wait until the London markets have opened before trading the EUR/GBP, making 8:00 AM GMT a good starting time for trading EUR/GBP. The pair remains liquid and at its most volatile until 16:30 GMT.