Euro Trading
Euro USD is one of the most popular currency pair in forex market. Most of the traders when they start out making money with forex trading they go for Euro trading against the dollar. However, unfortunately most of these traders know practically nothing about the Euro trading. The only thing they look for is the euro to dollar conversion or the exchange rate. But when you are doing currency trading in euro there couple of significant facts that you should be aware of.
Unlike other currencies the euro is a very unique currency because it is not the historical currency of any nation. The euro was introduced after the formation of European Union or the European Economic Community. The European country leaders and European bureaucrats realized that it would boost their economic activities if they have a common currency. Today, Euro is the second most traded currency (after the US dollar), in the forex market. Naturally Euro is a very significant power in financial markets.
History of Euro:
The European Economic Community or the European Union was formed as a means of lowering trade barriers between nations in Western Europe. Over the years it has extended to include countries in Eastern Europe. However the most important factor for expansion of euro trading is the formation of the European Monetary Union (EMU) and the introduction of the currency euro, which happened during the beginning of this millennium.
Facts You should know while Trading in Euro
The euro is controled by the European Central Bank (ECB). Because of its status as a multinational regulatory bank, its remit is a little different than the US Federal Reserve. The European Central Bank is concerned solely with interest rates and maintaining price stability within the Euro zone, while the Federal Reserve and most other national central banks also have to consider the effects of their decisions on employment levels.
Hence the European Central Bank tend to favor an increase in interest rates. They will put the interest rates up more quickly than the Federal Reserve would when prices rise, and are less likely to lower them when prices fall. This means that variation in retail price index in France will not affect euro interest rates and therefore the price of the euro. On the other hand a similar situation in the United States would affect the price of the dollar.
The next significant fact while doing euro trading is that although there are now 27 member countries of the European Union, only 16 of them are members of the EMU (the Euro zone). Another 5 use the euro but are not official EMU members. The others have decided not to join the Eurozone for their own reasons. Particularly, the United Kingdom is in the European Union but does not use the euro, while Switzerland is not a member of the EU at all. Both these countries have retained their own national currencies, the British pound and the Swiss franc.
In addition, many countries in the European Union have a small GDP (Gross Domestic Product) and are not large economic forces. Hence the fundamental factors that affect the price of the euro depend primarily on the economic conditions in just four European countries. Those four countries are Germany, France, Italy, and Spain respectively. Together, they produce 3/4th of the GDP of the Euro Zone.
Euro Trading – The Most Important Factor
Thus, the most important fundamental factor that affects the price of euro is the economic situation in the 4 key European nations while the other European countries will have much less of an effect on euro trading. A forex trader who is engaged in euro trading has to closely follow the major economic announcements in those four countries to get the best out of euro forex trading.
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