EUR/USD is one of the most traded currency pairs worldwide. It belongs to the major trading currency pairs, including USD/JPY, USD/CHF, GBP/USD, AUD/USD, NZD/USD, and USD/CAD.
The power of currency pair is very high. The US dollar is a widely held currency, while the Euro takes second place after the US dollar. So, the EUR/USD covers two leading economies, including European and American. It obtains more than half of the total trading volume on the Forex market. Let's review the key factor impacting the EUR/USD volatility.
The Impact on EUR/USD Volatility
The first factor that plays an important role in the impact on the volatility of the currency pair volatility is trading sessions. While trading, market participants need to know when a volatility is high and when it calms down. As usual, EUR/USD is traded with low volume during an Asian session because the most important events for the EUR/USD currency pair occur during the European and US sessions. An activity drops when traders have lunch and increases when the US session starts. A liquidity drops again at 5:00 GMT when European traders close out their positions, but still may be high because of the US trade session.
Institutions and personalities
The major institutions that impact the EUR/USD currency pair are the central banks of Europe (ECB) and the US (Federal Reserve Bank, or the Fed). ECB and the Fed control the monetary policy, money supply, and interest rates. As a result, any update of these banks impacts the strength and weakness of the currency. Market participants follow every regular meeting of central banks to get the insights regarding both euro and dollar.
Along with the regular official updates, sometimes the heads of these two banks make some statements regarding the national monetary policy. This causes volatility in the Forex market.
Any political issue impacts the EUR/USD pair. For instance, Brexit, crises in European countries, elections in countries with the biggest economies in the European Union.
Every week you can find a huge number of economic events on the calendar. In this article, you will get the most important economic indicators that every trader needs to know.
One of the most important factors that impact the volatility of the EUR/USD market is CPI, which means Consumer Price Index. Of course, if we discuss the EUR/USD pair, the traders should focus on the US and EU price indices. The United States CPI (the component of inflation rate) is the most important because it affects all other currencies.
One more crucial factor is GDP. It demonstrates how much the economy is strong and healthy. The same principle is effective for GDP: European and US GDPs growth are the most important.
One more factor impacting the volatility of the EUR/USD currency pair is PMI. Purchasing Managers Index is one more way to evaluate the economic health that impacts the strength of the currency. The report demonstrates whether corporate purchasing managers are optimistic or pessimistic about the economy from a medium-term perspective. This report has a high level of importance because central banks pay attention to this data while building monetary policy.
The list of important economic reports includes the balance of payment. It demonstrates how much funds a country receives from abroad and how much it pays to other economies.
Of course, we have to mention again the updates from the ECB and the Fed. Each news regarding a key interest rate immediately pushes the Forex market.
Ideal Times to Day Trade EUR/USD
A period from 07.00 to 20.00 GMT marks the acceptable EUR/USD trading hours for intraday traders of the EUR/USD currency pair. There is a necessary movement in this time to get a profit and cover spread and commission costs. An ideal time to trade this currency pair is between 13.00 and 16.00 GMT to increase a level of efficiency. During this period, you will see the most significant movements of the day. This enables greater profit potential. London and New York are both open during this window. Much volume comes from two of the biggest markets. That's why spreads are typically the tightest during this period.
Read more: What Forex Day Trading Is: a Beginner’s Guide
Is EUR/USD a Good Pair to Trade
Being the largest and most traded currencies all over the world, EUR and USD represent the highest proportion of trades in the international finance market. Trading this currency pair is extremely popular. This is actually the most liquid currency pair overall.
A huge number of companies work both within Europe and the United States while having offices in both locations. This is one of the essential reasons why a huge number of exchanges use two currencies every day.
However, this is not a singlee reason why this currency pair is so popular among traders today. Other significant reasons to trade this currency pair include the huge amount of economic and financial data available on the EUR/USD exchange rate and the combination of volatility and liquidity in the EUR/USD market. Therefore, trading this currency pair is attractive for ultimate newbies as well as experienced traders.
Is USD Stronger than Euro
Both the Euro and dollar belong to the most commonly used currencies all over the world. It's the most popular question whether the USD is stronger than the Euro or the opposite.
Opinions are divided over this question. There are arguments for both. However, the majority of economists think that the Euro is the strongest currency. The Euro can boast of multiple reasons why the Euro is considered to be strong, including a huge number of countries that use its exchange rate to the dollar.
Acceptable Times to Day Trade EUR/USD by Region
While trading the EUR/USD pair, the main purpose of any trader is to determine a window with a high level of volatility. As usual, when Europe is open for business, currency pairs that contain the Euro and GBP are more actively traded. Similarly, when the US and Canada sessions are open, the currency pairs that contain the USD and CAD are more active. It means that the best time to trade EUR/USD is when the European market or American market is open.
When both the markets are open, the pair is more actively traded. A trader should check the time when both markets are open. In the GMT zone, the best time to trade is between 13:00 and 15:00 hours (01:00 - 03:00 pm).
When both markets don't work at the same time, the price movement can be very low to get a profit from trading.Therefore, the most acceptable time to trade is considered to be from 8.00 to 16.00 GMT. It doesn't depend on that fact whether a level of daily volatility increases or drops.
Read more: The Best Time to Trade EUR/USD in India
How to Trade EUR/USD
If you want to trade this currency pair, you need to pay attention to three main trading styles:
- Scalping trading style. Scalpers hold their trades open for a short period of time, usually minutes.
- Day trading style. If you choose this trading style, a trade is open for several hours within the day. Intraday time frames end when the day traders successfully close their trades.
- Swing trading style. The aim of the trader is a particular weekly or monthly trend. Swing traders open their orders when there is a trend.
EUR/USD belongs to the most traded currency pair all over the world. The essential institutions that impact the EUR/USD currency pair include the central banks of Europe and the US. Among the most significant factors that impact the volatility of the currency pair, we can emphasize sessions, political issues and economic events, including CPI and GDP, activity of the central banks of Europe and the US.
EUR/USD is the most actively traded when both markets are open. For instance, for traders from the EST zone, the best EUR/USD trading hours are between 13:00 and 15:00 GMT hours.