As the biggest currency pair in the financial markets, the EUR/USD provides considerable liquidity to all types of forex traders. Although this pairing has experienced high volatility over a period of time, most recently in 2010 and 2011, because of Greece’s economic catastrophe, the latest trading analysis indicates the pair is experiencing tight spreads and lower volatility over time. Low volatility is a problem for day traders because a lack of price movements can limit their prospective profit margins. While there is a low risk, the potential reward is also reduced. Despite this general stability, there are still instances to capitalise on the pairing’s daily volatilities by tracking prospective market price triggers and concentrating on price swings.
The EUR/USD – The most Traded Currencies
According to Central Banks research, the Euro is the runner-up to the USD in the list of the world’s most traded currencies. With this analysis, it is no surprise that the EUR/USD is the most traded pairing because it contains the globe’s top two valued currencies. The other top 10 traded currencies globally include the Japanese Yen, the Sterling Pound, the Australian Dollar, the Canadian Dollar, the Swiss franc, Renminbi, Swedish Krona, and the New Zealand dollar. Using fundamental analysis or USD technical analysis to predict how the price moves, traders can discover a wide range of trading strategies they can use to trade the EUR/USD pair. However, there are only three strategies that are known to bring in the results, read more in the Tixee blog.
Analysing the EUR/USD Pair
Several factors affect this pairing’s actual market price and potential movement in price. Market maker experts categorise these factors into the following groups:
- Fundamental analysis
- Technical analysis (including technical), price, and wave
Fundamental Analysis of the EUR/USD
The economic data of a country like the United States or zonal economic data of a region like the European Union (EU) directs how the economy in the two regions moves. Consequently, the relationship between the two determines how the EUR/USD behaves between trading sessions. Some European and American publications that affect this currency’s price in the European market, Asian markets, the American market, and other markets include:
- Interest rates, monetary policies, and press conferences from central banks, such as the Federal Reserve (FED) and the European Central Bank (ECB)
- The trade balance
- Unemployment rate
- Inflation rates
- GDP growth rates
- Business sentiment
- Retail sales
- Consumer confidence
- Industrial orders and durable goods orders
Tracking the release of these economic announcements, statistics, figures, and associated predictions is easier than ever before because most forex brokers have a forex calendar. The economic data affects the value of a physical currency because it offers information about the performance of the US and EU economies. As a result, central banks news is vital because it conveys the decision maker’s view of the two regions’ future and current economic outlook. With fundamental analysis, investors that want to invest in this pairing primarily focus on long-term investments.
Using Market Sentiment to Trade the EUR/USD
Also known as investor sentiment, those who prefer trading day sessions can rely on it to influence the technical indicators to evaluate market operations. This way, they can profit from the short-term price changes usually caused by traders’ reactions toward security. Investor sentiment is vital for traders who like to invest in the opposite direction of the current market consensus. For instance, if everybody is selling the pair, a contrarian would buy.
Technical Analysis, Wave, and Price
The best thing about trading the EUR/USD is that it offers considerable scope for technical, wave, price, and other typical day trading strategies. These elements give traders ample trading opportunities to design trading systems. Traders can quickly formulate potentially profitable trading strategies with various indicators, tools, and trading advice. Intraday trading enthusiasts (traders who open and close trades in a day), intraweek traders (traders who open and close trades in a week), and swing traders (traders who open and close trades over a trading range of several weeks) are the ones that prefer using these strategies to enhance their trading opportunities. The three segments – technical, wave, and price – all have their methods, chart patterns, and tools that vary from one trader to another. Traders use the indicators to identify trade entry points, trade exit points, trading price, and the correct position size offering the best chance of success in a long-term trade.
EUR/USD Technical Analysis
Technical analysis entails assessing charts, trends, resistance levels, and trading station support via indicators and other special tools like Fibonacci retracements and trend lines. These indicators usually search for possible break and rebound points. For instance, a breakout over a specific indicator could translate to a probable short EUR/USD trading. Traders can use these indicators to determine a reversal point or pullback within a range or trend or trading volume.
EUR/USD Price Analysis
Trading using price action is an advanced trading style that requires traders to assess the Japanese candlestick patterns to recognise all factors affecting price changes. Price analysis techniques for trading this currency emphasise understanding the order of candles, bars, and chart analysis to discover whether the price will break, rebound, continue or fall. Candle openings and closings and the price’s highs and lows offer valuable information about price changes. For instance, a recurrent day trade forex candle close that is too far from the highest reached by a candle could translate to trend exhaustion.
EUR/USD Wave Analysis
Wave analysis uses the Elliot wave theory to review price patterns. Wave experts examine past waves to find the current, next, bullish, corrective, bearish, and impulsive waves. Wave forex strategies for trading the EUR/USD use wave patterns to make their decisions. For instance, a 4-hour EUR/USD chart could encounter 1 – 2 bullish wave patterns. On the other hand, a wave trade could speculate on the anticipated wave 3 by taking a long entry on or after a reversal.
Analysing the EUR/USD Trends
Before jumping into EUR/ USD trading, here are the things that investors need to analyse:
- EUR/USD Underlying Trend When analysing the dollar’s historical performance, it’s advisable to consider a time filter of the currency over an extended period. Therefore, before trading in the currency, it’s common to analyse the daily and weekly chart trends to determine price fluctuations.
- EUR/USD Current Trend The primary objective of understanding the currency’s current trend helps traders learn whether it’s consistent with the daily chart’s trend. Later, one can incorporate small units of time, such as the 1-minute chart, 5-minute chart, 30-minute time frame charts, 1-hour chart, or even the 3 lows – 1-hour chart 1. The secret of this analysis is to use the same technique to assess if the current trend conforms to the underlying trend. When using a 30-minute time unit to find standard settings for the current trend, forex prices tend to experience an upward trend.
- EUR/USD Price Action The price action offers valuable information that helps traders discover the best time to trade this pairing, and in the process, reduce the potential risk. . If the price action shown by the current candle closing breaks high, it could indicate a rising trend. On the other hand, a low-price break on the candle closing indicates a downward movement trend.
Other Euro USD Trading Strategies
The Euro and Dollar are commonly classified as safe currencies, according to CMC Markets. As a result, they experience plenty of movement during day and week trading, enabling traders to use common trading strategies like the carry trades when trading. Besides, traders can create custom trading strategies and include them in the trades following thorough testing.
Trading the EUR/USD can be a good and tricky endeavour because of the difficulties of getting a desirable profit margin from a low volatile currency. Investors should thus observe charts keenly and be cautious of the peak trading time frames to benefit from these currencies.