Market Analysis
The Currency Pair EUR/USD is a shorter phrase for the euro-US dollar pair, or cross between the currencies of the European Union (EU) and the United States (USD). The currency pair represents the number of US dollars (the quote currency) required to acquire one euro (the base currency). The EUR/USD currency pair is also referred to as trading the "euro." The EUR/USD pair is expressed at 1 euro per x US dollars. For example, if the pair is trading at 1.50, it implies it costs 1.5 US dollars to buy one euro.
Basics of Currency Pair: EUR/USD (Euro/US Dollar)
The EUR/USD pair has emerged as the world's most popular trading pair. The duo combines two of the world's largest economies. It is influenced by factors that affect the euro and the US dollar's relative values to one another and to other currencies.
As a result, the interest rate differential between the European Central Bank (ECB) and the Federal Reserve (Fed) influences the value of these currencies relative to one another.
For example, if the Fed intervenes in open market activities to strengthen the US currency, the value of the EUR/USD cross may pull back or drop as the US dollar strengthens against the euro. Similarly, bad news about the EU economy has a negative impact on EUR/USD values. The news of the government debt crisis and immigration surge in Italy and Greece triggered a euro selloff, causing the pair's exchange rate to plummet.
A Brief History of the Euro Currency
The euro currency was established in 1992 as a result of the Maastricht Treaty. It was first established as an accounting currency in 1999. On January 1, 2002, the euro began to circulate in EU member countries, and over the course of several years, it became the accepted currency of the European Union, eventually replacing several of its members' currencies. As a result, the euro integrates and represents a significant number of European economies. This helps to stabilize currency exchange rates and volatility for all members of the EU. It also makes the euro one of the most widely traded currencies in the forex market, second only to the US dollar.
As of March 26, 2018, 19 of the EU's 28 member countries use the euro. According to the ECB, as of January 1, 2017, more than €1 trillion was in circulation worldwide.
Reading the EUR/USD Price Chart
Unlike a price chart for a stock, where the stated price directly indicates the stock's price, a price chart for a currency pair shows the exchange rate between the two currencies. As a result, the directional signal on a chart correlates to the base currency. Using the previous example, when a trader opens a long position in the EUR/USD currency pair at 1.50, the euro strengthens (as shown in the price chart) while the US dollar declines. It now costs $1.70 (more dollars) to buy the same euro, weakening the dollar and/or strengthening the euro.
However, it is vital to note that the pair's base currency is fixed and always represents one unit. Thus, the rate does not indicate the source of the strengthening or weakening. The EUR/USD rate might rise as the euro strengthens or the US dollar weakens. Either condition causes an increasing shift in the rate (price), which is reflected in a pricing chart.
Disclaimer
Derivative investments involve significant risks that may result in the loss of your invested capital. You are advised to carefully read and study the legality of the company, products, and trading rules before deciding to invest your money. Be responsible and accountable in your trading.
RISK WARNING IN TRADING
Transactions via margin involve leverage mechanisms, have high risks, and may not be suitable for all investors. THERE IS NO GUARANTEE OF PROFIT on your investment, so be cautious of those who promise profits in trading. It's recommended not to use funds if you're not ready to incur losses. Before deciding to trade, make sure you understand the risks involved and also consider your experience.