Why is EURUSD the most traded pair?
Have you ever wondered why EUR/USD is a volatile currency pair and still considered as one of the Major currency pairs?
The US dollar and Euro are two most important and popular currencies. These currencies belong to the world’s biggest economies which have the largest trading volume.
What is EUR/USD?
Euro and US dollar are the official currencies of the nations of the European Union and US respectively, where Euro is the base currency and the US dollar is the quoted currency. The direction of monetary policies for the US dollar is determined by the FOMC (Federal Open Market Committee) which is the branch of FED, and has an impact on the value of the US dollar. And, the Central Bank for Euro is the European Central bank which has a similar impact on Euro currency.
The long term price movement is determined by the macroeconomics and the relationship between two countries which further depicts the nature and the behaviour of the currency pairs. Though EUR/USD is highly traded, it facilitates greater price stability. However, it’s still sensitive to some big news events which can have a major impact on the currency’s volatility.
Fundamental factors that influence Euro/Dollar:
- Inflation Rate: Changes in market inflation can have a considerable impact on currency prices. High inflation usually results in devaluation of the currencies which encourage central banks to increase the interest rates.
- Monetary policies: The strength of the country’s economy suggests the strength of the currency. When a country has a strong growth rate, it results in increased demands for its products and services. Therefore, the government and central bank authorities always try to achieve the economic goals of a country by formulating monetary policies.
- Interest Rates (ECB and FED): Increased interest rate attracts foreign investors, causing the currency rate to rise whereas any decrease in interest rate makes the currency less enticing.
- Political instability: Any political issue can impact the EUR/USD pair, for example, elections in countries, any type of crisis or a war-like situation.
As it is not possible for short term traders to analyse the market fundamentally, they can still take advantage of the volatility by using technical indicators because charts contain all the necessary information. Traders can use support and resistance levels, price patterns and trendlines to make trading decisions.
Things to consider before trading EUR/USD:
1. Traders should always read economic calendars as it contains all the important data that may help them in predicting the direction of the pair.
2. It’s also important to look for low spread brokers, as on eurusd some brokers even offer spreads from 0.0 pips, like
3. Traders who are interested in trading EUR/USD should prefer trading during the hours when market liquidity is high. The best time is when the London and Newyork markets overlap.
With many factors affecting the currency pair, traders can predict possible changes in the movement of the currency pair by staying up to date with the latest market news and analysis and can exploit the lucrative opportunity offered by EUR/USD.
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