The EUR/USD is the most frequently traded currency pair in forex, nicknamed the Fiber. Representing two of the largest economies in the world, the value of the EUR/USD depends significantly on the relative economic strength of each nation. It’s not much of a surprise that the EUR/USD is the most popular traded currency pair in the world. But while strong volatility and volume bring day traders from all over the world to EUR/USD, producing substantial profits is no straightforward feat.
The currency pair indicates how many US dollars (the quote currency) are needed to purchase one Euro (the base currency). For example, if the pair is trading at 1.20, it means that it takes 1.20 US dollars to buy 1 Euro.
What Determines the EUR/USD Exchange Rate?
Several factors can impact the EUR/USD valuation, including:
ECB & US FED Monetary Policies: The European Central Bank and the Federal Reserve control the supply of money in the market, to keep the economy on track. A dovish policy, which is also known as expansionary policy, weakens the currency. In contrast, a hawkish monetary policy (contractionary policy) strengthens the single currency Euro.
Any movement in the US and Eurozone economic events determines the exchange rates. Top of the line economic events include GDP, Employment Change, Industrial Production, and Consumer Price Index. Better than forecast data increases the demand for the related currency and impacts the value of either the Euro or the US Dollar, causing fluctuations in the EUR/USD exchange rate.
Major Economic Events Related to the EUR/USD:
Gross Domestic Product – the Gross domestic product is the central measure of economic growth in the region.
Employment Change – The Euro is also sensitive to changes in employment, particularly in the Eurozone’s largest economies like Germany and France.
Consumer Price Index – Since one of the goals of the ECB is to maintain price stability, they keep an eye on inflation indicators such as the CPI.
If the annual CPI deviates from the central bank target, the ECB could make use of its monetary policy tools to keep inflation in check
German Industrial Production – This measures a change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities.
Political Events – Another critical factor is the political aspect. Instability, as seen in the Brexit referendum, can entirely change the direction of the currencies. The real challenge begins in keeping an eye on the various countries within the Eurozone. So, stay up-to-date on the latest political and economic news.
The EUR/USD is traded in amounts denominated in the US Dollar.
Standard lot Size: 100,000
Mini lot size: 10,000
One pip in decimals 0.0001
Pip Value: $10
Pip Value Dollar = Pip in decimal places * Trade Size