The EURUSD is the ticker for the euro dollar exchange rate. It is one of the majors in Forex market, for UK traders, and because it represents the world’s largest economies and trading blocks, it is also the most liquid pair. EUR USD trading 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 UK traders, even newbies, because of the unique combination of liquidity and volatility.
Reading the EUR USD trading 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 EUR-USD pair is rising, it means that the euro is strengthening over the US dollar; and when the price of the EUR-USD 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 EUR-USD is 1.20, it means that to buy 1 euro, one would have to pay 1.20 US dollars.
History of the EUR/USD trading
Because the EUR/USD is the most popular currency pair in the Forex trading online market, it is hard to imagine that some 20 years ago it was not around. The EURUSD trading online 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 EUR/USD 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 GBP/USD, 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 EUR USD price
Interest rates are the major factor influencing the EUR/USD. 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 EUR-USD 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.
The EUR/USD 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, EUR USD 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.
Day Trading the EUR/USD Pair
Many people get attracted to forex trading because of the 24-hour nature of the market. They believe that since the market is always trading, they will be able to trade and profit at any time of the day or night. Unfortunately, that isn’t true. Anyone looking to profit from forex trading will soon learn that it is best to trade the pair you’re interested in only during the hours when the volume and volatility are highest. In the case of the EUR/USD there are many hours of the day with acceptable volume and volatility, because it is the most heavily traded of all currency pairs. That keeps EUR/USD spreads low most of the time, and gives traders the chance to profit much of the trading day. However, to really hone in on the best trading window for the EUR/USD you’ll want to consider day trading only 3-4 hours each day.
EUR/USD Volume and Volatility
The forex market is a global market and so it operates 24-hours a day Monday through Friday to accommodate businesses all across the world. But just because the market is open for trading it doesn’t mean there will always be active trading in every currency. In fact, what we see is that different currency pairs are more active at certain times of the day consistently. So, when the European markets are open for business it is typical to see the most volume and volatility for pairs containing the euro or the British pound. When North American markets open pairs containing the U.S. dollar and Canadian dollar become most active. And during the Asian session the Australian dollar and Japanese yen see the most action. If you want to day trade the EUR/USD the best times for volume and volatility for the pair are going to be when both London and New York are open. Those two markets are open from 8:00 AM to 22:00 PM GMT, but not concurrently for the entire timeframe.
A Good Time to Day Trade EUR/USD
If you look at an hourly volatility chart for the UER/USD you’ll see that there are spikes and dips throughout the day at specific times. These correspond with market openings and closings from around the world. The volume and volatility for EUR/USD begins increasing around 7:00 GMT and remains elevated through 21:00 GMT. Volume outside these hours is considerably less, and volatility also drops off, meaning there is less chance of being able to capture a substantial price move outside these hours. If you’re looking to day trade the EUR/USD you would be wise to focus your efforts during the hours of 7:00 to 19:00 GMT. If you try trading outside these hours there’s a good chance that the pip movement won’t be great enough to cover the spread. It’s also possible the market will simply remain stagnant outside that trading window.
It is true that average volatility will change over time, however the most volatile hours of the day don’t vary much because they are tied to the market hours in Europe and the U.S. Unless these markets make a change to the hours in which they are open to trade the window of 7:00 to 19:00 GMT will remain as a good time frame to trade EUR/USD. It should be noted that any daylight savings changes in your time zone could affect the best trading hours for you.
The Best Time to Day Trade EUR/USD
We’ve already noted that the hours between 7:00 and 19:00 GMT are good for trading EUR/USD. There is enough volume and volatility during this time frame to keep spreads low and to allow enough movement to make good profits. You can hone in even better though to improve your trading efficiency. For example, after the initial uptick in volatility from 7:00 to 9:00 there is a lull in the market and volatility dips from 9:00 to 11:00. There’s a spike higher after 11:00, which could present an opportunity before London heads into its lunch hour.
The very best time to trade the EUR/USD in terms of volatility and volume come directly after the London lunch hour. The highest volumes and volatility occur from 13:00 to 16:00 GMT. Not only is this the afternoon in London, it is also the start of the trading day in New York. These hours are when the greatest moves of most days will occur, giving traders the best potential for profits. You’ll also find that spreads are typically at their lowest during these hours due to the big increase in trading volume coming from two major market centres at the same time.
So, by focusing on just three hours of the trading day you should be able to substantially increase your profit potential, while significantly decreasing the amount of frustration you encounter during low volume times of the day.
EUR/USD Trading Main FAQs
- Why is the EUR/USD so popular?
The popularity of the EUR/USD pair is no surprise. It comes down to simple demand, primarily from multi-national corporations that need to buy and sell in both the U.S. and Europe. And because these corporations generate such a large amount of liquidity for the pair the retail traders have also joined in to take advantage of the ease of trade and the extremely tight spreads to be had. Plus the economic and political factors that can move both the U.S. dollar and the Euro are completely clear and transparent, saving traders from any surprise moves in most cases.
- Do I need to trade the EUR/USD?
As the most traded asset in the world you certainly shouldn’t be going wrong by trading the EUR/USD. You’ll get excellent liquidity at all times, and extremely tight spreads, which will help you keep more profits to yourself. The steady moves in the EUR/USD also make it the ideal pair for day trading, swing trading, and scalping, so you can apply any trading strategy to the pair. Finally, the transparency in the European Union and United States makes it a simple task to analyze the fundamental factors affecting the pair and to gauge the correct trading direction.
- What’s the best strategy for trading the EUR/USD?
The most liquid forex pair in existence offers some very simple, yet successful trading strategies. Using support and resistance levels is extremely important to these strategies, which take advantage of those important price levels. Both support and resistance levels can be used as a way to locate areas where price can either be expected to pullback, leading to a correction, or to breakout, leading to a new rally higher or sharp drop lower. Traders who can identify these areas for pullbacks and breakouts will soon find this simple strategy to give them great success in trading the EUR/USD.