Forex Pairs: EUR/USD – The Most Widely Traded of All The Major Forex Currency Pairs

The eur usd is the most widely traded of all the major forex currency pairs, which is curious given that it has only been in existence as a physical currency since 2002, having been a purely accounting device prior to its launch, early in the new millennium. Since then, the euro has been adopted by many of the EU Member States as the currency of first reserve, replacing the more established US dollar in the process, with a consequent decline in the importance of the US dollar. However, all this has changed in recent months, with the sovereign debt problems of Greece taking centre stage, and as a result the euro has lost much of its recent appeal, with many investors preferring the safe haven status of the US dollar, and physical commodities such as gold, as a result. Indeed it is now being suggested in certain countries that the euro may be abandoned, with a return to the previous national currency, something which would have been unthinkable even 12 months ago. Whilst this seems unlikely to happen, the fact that it is even being discussed is extremely worrying for those EU Member States fully committed to the European project, and as a result the euro continues to remain heavily pressured by currency speculators and investors, with the former shorting the eur usd in ever increasing volumes, whilst the later pour their cash into the safer haven paper currencies of the US dollar and Japanese yen, and precious metals such as gold, and platinum. However, for the time being, the eur usd remains the most liquid of all currency pairs, and provides an indicator for both strength and weakness in the US and European economies as a result.

Economically of course the eur usd pair represent the two largest economies in the world, with the US taking the top spot, whilst Europe represents over 23% of the world’s GDP or gross domestic product. European monetary policy is managed by the European Central Bank, which is responsible for maintaining liquidity, purchasing power and overall economic stability, using the blunt instrument of interest rates once again. In the last few months the ECB’s role has changed dramatically, as it has had to stand guarantor to the possible default  by EU Member States such as Greece, and in addition being forced to purchase bonds, which is contra to its constitution, and which has already raised questions in other European States. As Europe’s most widely used currency, the euro is particularly sensitive to economic and political upheaval such as we have seen in the last few months, and with the recent recovery in the US dollar, coupled with the demise of the euro, the eur usd bearish trend seems set to continue in the medium term.

Forex Trading Indicators

Naturally as with all the other major forex pairs, there are a broad array of economic indicators and fundamental news releases which will affect the eur usd pair, and below are just a few of the major indicators, and you can find all the latest news releases for today by following the link here to the economic calendar.

  • Interest rates – as with all major currency pairs, interest rates cause market volatility on release, particularly where a rate change surprises the market. In both Europe and the US interest rates have been at record lows for some time, as economies struggle to recover from the recent recession, and therefore in the last 2 years, any interest rate decisions have lacked that element of surprise. However, as we begin to recover, these announcements will take on increasing importance to forex traders, as the prospect of an interest rate rise becomes increasingly likely, once economies turn, and inflation becomes the issue for central banks and governments once again.
  • GDP or Gross Domestic Product is one of the classic lagging indicators, which provides a view on the economic health of the country or otherwise. GDP represents the total sum of all goods and services made in the period, and whilst the forex markets will react to the figures on release, it is the longer term trend that is more important as this will signal a positive or negative trend to the underlying economy. For both the US and Europe it is important to consider the release over a two year period which will then provide a more meaningful analysis.
  • CPI – the Consumer Price Index provides us with a direct measure for inflation, indicating as it does, what consumers have to pay for products and services. Should the numbers indicate a threat of inflation, then this in turn is likely to reduce the purchasing power of the currency, and as such will influence the central bank to raise interest rates as a result.
  • Money Supply – A set of broad measures M0 to M4 which measure the amount of cash in the system available for the purchase of goods and services. Again this gives an indication of the broader economy and is a long term indicator.

All of the above indicators are covered in more detail in the economic indicators section of the site, and below is a forex trading chart with the latest live prices for the USD GBP forex pair.

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