Forex

Guide to Trading EUR/USD Currency Pair

The EUR/USD is by far the most traded currency pair in the world because of the amount of liquidity and volume it commands in the forex market. The pair is always a buzz of activities in part because it represents two of the biggest economies in the world.

Understanding the EUR/USD

The EUR/USD is the most liquid currency pair in the trillion-dollar marketplace as it consists of two of the major currencies in the world. The U.S dollar, on one hand, is controlled by the Federal Reserve Bank and is the world’s largest reserve currency. The European Central Bank, on the other hand, controls the Euro considered as the second-largest reserve currency.

The Best Time to Trade the EUR/ USD

While the forex market is open 24 hours, five days a week, it is not all the time that the EUR/USD provides exciting trading opportunities. Conversely, there are special times during the day when the currency pair is most active.

Similarly, the EUR/USD elicits more orders between 06:00 and 17:00GMT. It is during this time that the European and the U.S market are opened. During this time, the volatility levels tend to tick higher as traders react to economic and political developments between the two economic blocks.

Read More: Guide to Trading EUR/GBP Currency Pair

Factors That Influence EUR/USD Price action

Just like any other currency pair, the EUR/USD currency pair oscillates throughout the day in response to various economic releases as well as political developments both in the U.S and Europe as well as on the global scene

Interest rates as regulated by the ECB as well as the FED influence a great deal how traders buy and sell the currency pair. Likewise, whenever the FED hikes interest rates, the dollar tends to strengthen leading to the price of the EUR/USD dropping. Conversely, whenever the ECB hikes interest rates, the Euro tends to strengthen, leading to an increase in the EUR/USD exchange rate.

Interest rates and economic outlook releases by the two central banks conversely influence EUR/USD price action. Economic data in the form of employment data, consumer price index, as well as GDP data, are also closely watched by traders conversely influencing EUR/USD price action directly.

How to Trade EUR/USD

The best way to trade the EUR/USD is by the use of Contract for Difference. A CFD is a financial instrument offered by most brokers in the forex market. Likewise, the financial instrument makes it possible to speculate on price difference of underlying securities.

While trading EUR/USD using CFD, you can speculate on the price by entering buy or long position on conviction that the EURO is going to strengthen against the U.S Dollar. The profit in this case will be the difference between the price at which you enter the trade and the price at which you exit the trade should the underlying exchange rate increase in value.

Similarly, you can enter a short position or sell with a CFD contract on conviction that the U.S dollar is going to strengthen against the EURO.  The profit in this case will be the difference between the price at which you triggered a sell position and the price at which you exit the trade should the exchange rate decline as predicted.

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Ruchi Gupta

Ruchi Gupta covers various beats from finance to technology and from lifestyle to hobbies. She has an MBA in Finance. Ruchi enjoys writing on celebrities and political news. She likes traveling and exploring places.

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