The two largest economic powers in the world are indisputably the European Union and the United States of America. The dollar, also called Greenback, is the world’s most traded currency as well as the most widely held, making EUR/USD the most popular and traded currency pair.
Due to its on-going state of liquidity, the pair offers very low spreads as the first choice of any trader seeking a profit from investing in the financial markets. Informed trading decisions and a wide array of trading strategies can be applied to this pair, due to the rich source of economic and financial data influencing the direction of its market price. Therefore, plenty of open opportunities to make huge financial profits arise from the ever-changing level of volatility this pair is characterized by.
The direction of the EUR/USD trading market price is dictated by the comparative strength of these two major leading economies. Simply explained, if all else remains constant and the American economy registers a rapid growth, it will cause the Dollar to strengthen against a weaker Euro. The opposite is true if the Eurozone experiences a growth of its economy, which will lead the Euro to a stronger state, in comparison to the Dollar which will weaken.
One of the major influences in the change of the relative strength is the level of interest rates. When the interest rates of the American currency are stronger than those of the key European economies, it accounts for a firm U.S. currency against the Euro. If the interest rates on Euro are strong, the Dollar normally drops. Having stated this, the interest rates alone do not dictate the movement of the currency market prices.
The dynamics of EUR/USD is highly dominated by the political instability of the Eurozone, as it is a widely recognized fact that the Eurozone is a testing ground for economic and monetary policies. The variety of unforeseen changes and differences between the countries that comprise the EU account for a stronger Dollar against the Euro.
These are the EUR/USD trading features you need to know before investing in the most popular currency pair in the market.
The GBP which is also referred to as Cable, the British Pound or even pound sterling, tends to trade at a wider range during the day. The GBP/USD is renowned as the most erratic and volatile currency pair as it is not unusual to see false alarms and unpredictable movements. Having unforeseeable changes in its price is the major attraction for experiences traders along with a very challenging investment for beginners.
The use of Technical Analysis and of the fundamental news coming from the United Kingdom and the U.S. are common grounds to trading the pair in an informed manner that helps you increase your chances of profitability. There are a couple of good tips you need to consider when you choose trading GBP/USD. Building a definitely good trading strategy is based on always keeping yourself abreast to news of both economies especially to identify and observe unexpected economic news releases which may cause erratic behaviour in this pair’s market price.
The yen which is the most liquid currency in the whole of Asia’s economy is also a form of proxy for the entire Asian economic growth. When instability is observed in the Asian sector, traders generally respond by selling or buying the yen as a replacement to other Asian nation’s currencies that are not as easy to trade. It is also worth mentioning that the Japanese economy registered a record period of low economic growth and relative low interest rates. When trading USD/JPY, a leading indicator of its future price direction is the Japanese economy which we must pay attention to.
Many forex circles recognize the Yen’s influential role in the carry trade. Due to Japan’s very low interest rate policy that has held for most of the 1990s to 2000s, traders borrowed the Japanese currency at a small cost and then used it to invest in other better yielding currencies. This generates benefits from the rate differentials.
Thus in the global context, the constant borrowing of the Yen proved appreciation to be a challenging task. Even so, the Yen trades with the same basic fundamentals as any other currency.
One of the dully noted major influences in the Japanese currency value is the US Dollar. This unpredictable behaviour is the reason why forex traders use technical analysis to understand the dynamics of this pair, on a long term perspective. Regular trading ranges may vary from 30 or 40 pips to as high as 150 pips.