Factors to Look Out for When Trading the EURUSD Currency Pair
Trade in the Forex EUR USD currency pair is commonly referred to as “trading the euro.” What this currency pair lacks in a creative nickname, it more than makes up for in clout in the global financial markets. The euro/ US dollar is the most popular major currency pair, and accounts for more than 28% of the global foreign exchange trading volume.
The euro is a unified currency which was adopted by the 17 countries in Europe that make up the Eurozone. The idea of having a unified European currency was one that had been the point of discussion for decades, but it was not until the close of the 20th century, that it eventually became a reality. The currency was introduced in 1999 and, since then, has grown in popularity to become the world’s second-largest reserve currency after the US dollar.
Economic Releases to Look Out for From Europe
It is fairly obvious that the economic news that comes out of Europe has enormous bearing on the way the EURUSD currency pair moves. In addition, the economic news coming out of the United States also plays a major role in impacting movements in this forex pair. A trader must continue to review this news. With regard to Europe, the biggest influence on this currency pair, which Forex traders need to look out for, comes from the CPI (Consumer Price Index), which is a measure of inflation, as well as the ECB (European Central Bank) monetary policies.
Next in the order of importance in factors that affect the value of the currency pair in Europe is the Purchasing Manager Index (PMI) release. This indicates whether a particular sector is expanding or contracting and gives the market clues with regard to the central bank’s interpretation of the data: bullish or bearish, hawkish or dovish.
The unemployment rate and the Gross Domestic Product (GDP) are also two important pieces of data that Forex traders look at when trading the Forex EUR USD currency pair. In addition, the euro often moves whenever the ECB has its monthly meeting, since every meeting has a press conference that is keenly followed by market analysts who will also conduct a review.
Economic Releases to Look Out for from the US
Due to the dual mandate that the Federal Reserve (the central bank in the United States) has, it is fairly obvious that inflation (CPI) and jobs data (Nonfarm Payrolls) are the two main factors that really matter when a trader is analyzing the markets. However, the Forex EUR USD currency pair is also affected by other factors which Forex traders should watch and review as well including: Retail Sales, which are released every month; the Institute for Supply Management’s Manufacturing and Non-manufacturing data; Producer Price Index (PPI); Private Payrolls (ADP), Durable Goods Orders and Gross Domestic Product data, which is released every quarter.
The economic data that is released in both the US as well as the Eurozone provide traders with some insight into the health of the economy of their respective countries. In most cases, when positive data is released, the currency of the country strengthens and vice versa.
Timing of Economic Releases
Monthly economic data from the Eurozone is normally released at 2 a.m. Eastern Time (ET) in the United States. Thirty to 60 minutes before these releases, and the two hours following the releases, are hugely popular times for Forex traders to trade the EUR crosses since there is bound to be a large impact on at least 3 of the most popular Euro-based currency pairs including, for example, the EUR/CAD, EUR/AUD, EUR/JPY, EUR/GBP and the EUR/CHF.
On the other hand, economic releases out of the US are usually released between 8:30 a.m. and 10 a.m. ET, generating huge euro and US dollar trading and providing high odds for strong trends in price movements among the popular currency pairs.
It is clear that the best time to trade the Forex EUR USD currency pair is when economic data is released. In order to plan ahead for these releases, a Forex trader should carry out two-sided research and reviews of the data from both the US and the Eurozone. An excellent place to start is to use an Economic Calendar and to gain insight into when this important data will be released and what analysts have forecasted regarding the results.