The world of Forex trading is marked by an array of diverse currency pairs. Among these, the EURUSD pair (EUR – base currency, USD – quote currency) stands out as the most popular Forex trading asset. Often referred to as the major currency pair, its popularity isn’t just for show but well-earned and justified.

In the world of Forex, the EURUSD foreign exchange pair accounted for almost a quarter of all FX trades according to the BIS survey. This positions it as the titan among its peers, overshadowing its main competitors, the USDJPY (US Dollar/Japanese yen) and GBPUSD (Great British Pound/ US Dollar), which only account for about 13% and 9% respectively. In other words, the EURUSD is the most liquid currency pair traded, a noteworthy feat in a market as dynamic and fluid as Forex.

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The Structure of Forex Trading Operations

The high regard and attention showered on the EURUSD currency pair come not only from media attention but also from the significant investors’ demand. A trend was noted between 2016 and 2019 where the Forex currency pairs daily trading volume experienced a noticeable growth from $5.1 trillion to a massive $6.6 trillion. Meanwhile, the share of EURUSD within this trading volume increased by almost 1%. This translates to about $600 billion, highlighting its immense significance in the Forex market.

However, to appreciate this importance fully, it is necessary to understand the history of these currencies. The USD history began after the proclamation of the United States’ independence in 1776 when the dollar became the local currency. Nicknamed the greenback due to its distinctive color, the dollar’s influence skyrocketed significantly after World War II.

In comparison, the British pound couldn’t compete with the dollar due to the weakness of the UK economy. Europe was left with no choice but to innovate. Thus, it harbored the grand design to create a common currency that would outshine the US dollar. After years of preparation, the euro was birthed in 1999 as a single currency for the 19 member countries of the Eurozone.

Fast forward to the present day, the US dollar dominates the Forex (Foreign Exchange) global market. Based on the IMF data, as of December 2020, the greenback’s share in the FX reserves of the world’s central banks is 59.5%, while the euro only has a 20.6% share. Despite this, it would be shortsighted to write off the single European union currency as a non-competitor to the US dollar. Before the euro’s introduction, the share of the US dollar exceeded 71%. This indicates that the euro has indeed made significant strides within a relatively short period.

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Factors That Influence the Euro / US Dollar Currency Pair

As with any other trading asset, the trend of the EURUSD and its momentum depends heavily on the stage of the cycle the global economy is in. For instance, during a recession, the demand for safe-haven assets, including the US dollar, escalates. As a result, the Euro/US Dollar pair experiences a downward trend.

In contrast, during a recovery from a recession, the mindset of investors changes. The focus shifts from preserving money to finding ways to multiply their deposit. Consequently, the factors that drive the EURUSD currency pair during this phase are the GDP growth rates and the monetary policy of European central banks and the US Federal reserve.

A strong economy is synonymous with a strong currency. A rapid rebound of GDP after a recession is often perceived as a reason to buy securities of the country. In 2020, the belief that the US economy will fully recover from the recession in the second quarter of 2021 and surpass its potential level in 2022 contributed to the S&P 500 rally by 18% from January to early August. This surge in capital into the US stock market bolstered the strength of the US dollar.

While the GDP rate is a reliable indicator, it unfortunately lags. The GDP report is typically published a month or a month and a half after the end of the quarter. This makes it difficult to determine at a specific time which economy is growing faster, leaving investors without a clear picture of the current economic situation. As a result, currency pairs traders are obligated to keep a close eye on some leading technical indicators, such as the US and Eurozone PMIs.

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Determining the Best Time to Day Trade EURUSD

Forex currency pairs can be day traded round the clock at any time that is convenient. However, it’s important to note that the risk associated with Forex trading increases during the most volatile hours. The Forex currency markets operate 24 hours a day from Monday till Friday, broken down into specific trading sessions:

• 0:00-9:00 UTC – Asian trading session;
• 07:00-16:00 UTC – European trading session;
• 13:30-22:30 UTC – American trading session.

The volume of transactions usually spikes during the crossover of several trading sessions: from 7:00 UTC to 9:00 UTC and from 12:30 UTC to 16:00 UTC. During these periods, Asian traders close their day trading positions while Europeans, on the other hand, enter the market. This is also applicable to the crossover of European late afternoon and New York morning trading hours, which is typically the most active.

London holds the title for the major trading center according to BIS research. In 2019, it accounted for a whopping 43% of all Foreign Exchange trader activity. The capital of the UK is the hub of the European session where EURUSD, GBPUSD, USDCHF, EURGBP, EURCHF, and other currency pairs’ exchange rates are mostly traded.

The second largest trading center is New York, which contributes 17% to the total volume of Forex transactions. Other trading centers include Singapore (7.3%), Hong Kong (6.7%), and Tokyo (6.1%). Americans lean towards trading the Euro Dollar exchange rate, USDCAD (US Dollar/ Canadian Dollar), and other currencies with US Dollar in pairs. The Asian trading session has its favorites – the USDJPY one currency pair, as well as AUDUSD (Australian dollar/ US dollar), AUDJPY, NZDUSD, NZDJPY, and others.

The question then arises – what is the best time to trade? If you are not planning to invest a billion dollars in one trade, liquidity should not be a problem. Increased volatility is observed during the crossovers of trading sessions. At that time, news is actively published. However, the best time to trade ultimately depends on the individual trading style and strategy. Some traders prefer higher volatility periods associated with market openings and closings or economic announcements, while others opt for calmer, more stable periods.

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Making the Most of Planned Events for EURUSD Trading

Just like the most famous legendary sea creature, the Kraken, large traders such as interbank markets and hedge funds often plan their actions based on specific market fundamentals. These fundamental factors include political and economic data and the future policy direction of institutions such as the Securities and Exchange Commission (SEC).

Key events can cause significant fluctuations in the EURUSD price. These include scheduled economic reports, such as inflation and employment data, GDP and PMI data, the European Central Bank (ECB) and Federal Reserve (Fed) meetings, and political elections.

For example, suppose the Fed hints at tightening monetary policy in the future, perhaps by raising interest rates or reducing its asset purchase program. In that case, the US dollar might appreciate because higher interest rates attract foreign capital inflow. On the other hand, if the ECB signals that it plans to ease its policy, for example, by lowering interest rates or increasing its asset purchases, the euro might depreciate because these actions increase the supply of money.

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Understanding EURUSD CFD Trading

Contracts for Difference (CFDs) emerged in the 1990s, enabling individual investors to participate in Forex markets previously accessible only to banks and investment firms. CFDs allow traders to speculate on the rising or falling prices of fast-moving global financial markets or instruments such as shares, indices, commodities, currencies, and treasuries.

However, CFD trading involves high risk due to the leverage involved. This can amplify both profits and losses. Therefore, while the potential profits can make CFD trading attractive, it requires a careful understanding of the market and a disciplined risk management strategy.

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EURUSD Trading Tips and Strategies

Trading the EURUSD pair successfully requires keen observation, accurate forecasting, and sensible strategy implementation. Here are some tips:

Monitor Global Economic Trends:

As mentioned, the EURUSD trend is highly influenced by the global economic situation. Keep an eye on economic indicators, news, and events that can impact either the euro or the US dollar.

Watch the Commodity and Stock Markets:

Commodity prices, especially oil and gold, can influence the USD due to its status as a global reserve currency. Similarly, trends in major stock markets can indicate overall investor sentiment, affecting the EURUSD pair.

Study Historical Price Movements:

Use technical analysis tools to understand historical price movements and identify potential trends, support, and resistance levels.

Use Moving Averages:

Moving averages can help identify the direction of the trend or when a market might be shifting from a bullish to a bearish phase, or vice versa.

Choose a Suitable Trading Strategy:

Your trading strategy should suit your trading goals, risk tolerance, and trading style. For example, some traders might prefer short-term scalping strategies, while others might prefer long-term position trading.

Adhere to Your Trading Plan:

Always have a trading plan and stick to it. This should include your entry and exit criteria, risk management rules, and what conditions would signal a need to modify or exit your position.

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Applying Technology in EURUSD Trading: Forex Robots

To assist in making trading decisions and strategy implementation, traders often employ advanced software applications or Forex robots. These tools can automatically execute trades based on predefined criteria, reducing emotional biases and enhancing trading efficiency.

A popular example is the Expert Advisor (EA) feature in the MetaTrader trading platform. For instance, an EA could be programmed to execute the Bollinger band strategy, a widely used method for EURUSD trading.

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Understanding Bollinger Bands

Bollinger Bands are a type of statistical chart characterizing the prices and volatility of a financial instrument over time. They consist of a simple moving average (SMA) and two standard deviation lines, one above the SMA and one below. These bands expand and contract based on the volatility of the market.

Two important concepts associated with Bollinger Bands are the “Squeeze” and “Breakouts”. The squeeze occurs when the bands come together, indicating decreased volatility and potentially hinting at a future sudden increase in volatility or a new trend. Breakouts refer to the price moving outside the upper or lower band, which may suggest the beginning of a trend.

In conclusion, the EURUSD pair presents many trading opportunities due to its high liquidity and sensitivity to various economic and geopolitical factors. Whether you are a short-term trader or a long-term investor, with the right knowledge, strategy, and tools, trading the EURUSD pair can be a profitable venture.

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FAQs about EURUSD Trading as the summary

When can I engage in EURUSD trading?

Forex markets are open 24 hours a day from Monday morning until Friday evening, which means you can trade the EUR USD pair whenever it suits you within this timeframe.

Will the EURUSD increase or decrease?

Predicting the movement of the EURUSD pair largely depends on global situations, such as the resolution of the coronavirus pandemic. Present uncertainties might suggest initiating sell trades for the EURUSD. As the economy recovers to its pre-pandemic state, investors may regain their interest in the EURUSD. However, keep in mind that Forex trading is subject to high volatility and risk, so having a well-planned strategy and risk management approach is essential. If you’re a novice trader, consider using a demo account to minimize potential losses.

How can I start trading EURUSD?

To begin trading the Euro/Dollar pair, you need to create a Forex trading account with Deriv. The process involves five simple steps:

1. Register with Deriv to open retail investor accounts.
2. Fund your account using a convenient currency and payment method.
3. Navigate to the Trade tab.
4. From the selection of trading instruments like Currencies, Cryptocurrencies, Metals, Oil, Shares NYSE, Shares NASDAQ, Stock Indexes, choose EURUSD.
5. Determine your transaction volume and click on Buy or Sell. Before entering a trade, conduct thorough price analysis or use built-in indicators to mitigate risks and avoid financial losses on your retail investor accounts.

Is it a good idea to invest in the Dollar?

Investing in the Dollar, particularly in the EURUSD pair, is a viable idea due to factors like the exclusivity of the US, the Fed’s monetary policy, and the attractiveness of US assets. However, due to the high risk associated with trading the EUR USD pair, a solid risk management plan is critical.

What does it mean to sell EURUSD?

Selling EURUSD means selecting the Sell option on your trading terminal. Even if you don’t own the asset, you can still sell it if you’re trading EURUSD with a broker like Deriv, which can loan you the asset. If the asset’s value decreases, you repay the borrowed funds and the difference between the selling price and buying price becomes your profit. If you anticipate a fall in EURUSD, confidently hit the Sell button and let Deriv handle the rest.

What is the most effective indicator for minute chart EURUSD trading?

The most effective indicator for trading EURUSD is one you thoroughly understand. If you’re a trend continuation trader for EURUSD, consider using ADX, Average True Range, and MACD to navigate the market. The ADX helps determine trend strength, and the MACD signals potential trend reversals through divergence with the price chart. For flat market conditions, the RSI and Stochastic indicators can be useful as they signal overbought and oversold market conditions, aiding in profitability.