The brokers and businesses use the exchange rate forecast to make proper decisions for their trades while decreasing risks and returns. There are a lot of methods of forecasting currency exchange rates. In this article, you will find out the most popular of them.
To understand what factors impact the EUR/USD, let's consider the particularities of the currency pair.
EUR/USD is also named Euro and Fiber. The Euro name is really easy to guess why it's so. There are two diverse options as for the Fiber name. Some traders think that this currency has gotten this name because the GBP/USD pair is called Cable. It's like traders made an upgrade of the old telecommunications cable used to connect the UK and the US. Other traders believe the Fiber name is used because the Eurozone has the best optical fiber network in the world.
EUR/USD belongs to the group of the major currency pairs. This group also contains other currency pairs, including USD/JPY, AUD/USD, NZD/USD, USD/CHF, and USD/CAD.
This is a strong currency pair. The US dollar and Euro are the most traded currencies all over the world. The EUR/USD covers two main economies, European and American. Therefore, it obtains more than half of the total trading volume on the Forex market.
What Factors Affect EUR/USD
Let's consider which factors affect the movements of the EUR/USD price, and how to make the EUR/USD forecast for tomorrow.
The first factor that impacts the EUR/USD is trading sessions. Traders need to be aware of the time of a highest volatility and periods of low trading volumes. As usual, the pair receives little attention during an Asian session because the most important economic data and events for EUR/USD are released during the European and US sessions. The activity drops at noon during lunchtime and increases again when the US session starts. A liquidity level drops again at 5:00 GMT when traders start to close their orders.
Institutions and Personalities
A list of the most important institutions that impact the EUR/USD pair includes the central banks of Europe and the US. The European Central Bank (ECB) regulates the monetary policy, money supply, interest rates for Euro, and, as a result, impacts the strength and weakness of the currency. The Federal Reserve, also known as Fed, does the same for the U.S. dollar.The market follows every meeting of central banks and speeches of the president and the chairman.
Every week the economic calendar is full of news. As it is mentioned above, the central banks of the EU and the US and their monetary policy impact the behavior of currency pairs. So, each public announcement from their side results in market fluctuations.
One of the most important factors that impact the EUR/USD currency pair is CPI which means Consumer Price Index. This is the most significant indicator of economic strength because it shows the inflation rate. CPI shows the purchasing power for each currency, and after current CPI is announced, EUR/USD rate responds.
One more important factor is GDP (Gross Domestic Product) which demonstrates how much the economy is strong and healthy. Healthy economy means a strong currency, and the news about the fast GDP growth pushes the currency rate up.
One more way to evaluate the strength of the economy is PMI (Private Mortgage Insurance). This indicator demonstrates whether purchasing managers are optimistic or pessimistic about the economy in the medium term. This indicator is highly significant because central banks apply this data while building monetary policy.
The list of important economic reports includes the balance of payment which demonstrates how much money a state gets from abroad and how much it pays to other economies.
There are also other indicators that impact this currency pair. However, these are the most important. Each news report about these indicators provokes the movements of EUR/USD.
How to Analyse and Understand Currency Pair Movement
The EUR/USD currency pair is one of the major currency pairs and can boast of large trading volumes that can be overwhelming to a beginner. Before starting to trade, each trader needs to learn how to analyze the EUR/USD currency pair.
The underlying trendThe underlying trend is the historical exchange rate that has existed over a long period of time. To make the EUR/USD forecast, a trader needs to focus on the movement of this trend on the daily EUR/USD live chart.
The current trendThe current trend depends on the current market activity. To analyze this trend, a trader needs to check whether the trend meets the underlying trend on daily, hourly, and hourly volatility charts. After the analysis of the EUR/USD chart, the current trend will tell the trader whether to invest in EUR/USD or not.
The price actionClassic price action is a method of analysis of the basic price movements, which generates signals of entry and exit in trades. It's popular for a high level of reliability. One more benefit of this method is that it doesn't require the use of indicators.
Classic price action demonstrates the movement of the price. Traders determine how the price moves by applying action rules, price drivers, and price action patterns.
After building, the interactive charts are used as technical indicators that allow traders to determine the most beneficial time to purchase or sell the chosen currency.
The Most Effective Strategies to Trade EUR/USD
- Breakdown/Breakout trading strategy: using this strategy, a trader relies on the growing trading volume after the breakout and breakdown. Traders get the payoff when the resistance level breaks, building the way to a potential profit from low-risk trade entries.
- Pullback trading strategy. Using this strategy, a trader relies on the pullback after the level break. This strategy helps determine levels of resistance or support. These levels can be high, low, or key. To determine levels of resistance and support, this strategy uses Fibonacci retracements, moving averages, and inception points. After that, levels of resistance are used to rebuild the initial trend direction by stopping the price swing.
- The Range Pattern Strategy. Traders use this strategy when the price is locked between support and resistance. The trader can purchase at the lower level of the range and sell at the higher measure of the range.
Read more: How to Learn Forex Trading for Beginners in 2022
The Most Popular EUR/USD Trading Styles
- Scalping is a trading style when traders open and close positions during a short period of time.
- Intraday trading is a trading style when a trader holds a trade open for several hours during the day. Intraday time frames need to end when a trader successfully makes a trade.
- Swing trading differs from day trading. A goal of the trader is a particular weekly or monthly trend. Traders open an order when there is a strong trend.
How to Trade EUR/USD on MetaTrader
- Download MetaTrader 4 or MetaTrader 5 on the JustMarkets website.
- Install MetaTrader 4 or MetaTrader 5.
- Locate the "New Order" icon on the tool and click it.
- Choose the EUR/USD option on the "Symbol" field
- Choose the size of your position on the "Volume" field
- Put on the "Buy in the market" button.
Tips for Technical Traders in EUR/USD
If you are a technical trader, you can choose any technical analysis method to trade this currency pair effectively. The EUR/USD currency pair is a highly liquid technical instrument. When it comes to trading the EUR/USD, any technical analysis methods will be effective, whether you are a fan of Price Action or repeating chart patterns and using them to predict the future behavior of the price.
If you are a fan of indicators, you can use any reliable indicator, including MACD, RSI, Stochastic, or ADX. Everything is effective in trading EUR/USD, including VSA, Keltner channels, Elliott wave analysis, or margin zones. You can implement any idea in these areas on the EUR/USD chart in MetaTrader.
The Best Time to Day Trade EUR/USD
You can trade Forex at any time when it's suitable for you. The Forex market works 24 hours a day, starting from Monday and ending by Friday.
- 0:00-9:00 UTC – Asian trading session
- 07:00-16:00 UTC – European trading session
- 13:30-22:30 UTC – American trading session
The number of transactions usually increases during the crossover of several trading sessions: from 7:00 UTC to 9:00 UTC and from 12:30 UTC to 16:00 UTC, when traders in Asia close day positions and traders in Europe start trading. In addition, the level of transactions increases during the crossover of European late afternoon and morning trading hours in New York, when the market is the most active.
The major trading center is considered to be London. In 2019, 43% of all Forex trader activity was concentrated in the London market. In the UK, a list of most traded currency pairs includes EUR/USD, GBP/USD, USD/CHF, EUR/GBP, and EUR/CHF.
Around 17% of the global number of transactions are concentrated in New York. When it comes to other trading centers, we need to mention Singapore (7.3%), Hong Kong (6.7%), and Tokyo (6.1%). The most popular currency pairs among American traders are EUR/USD, USD/CAD, and other dollar pairs.
If you don't make a huge deposit in one trade, liquidity is not a problem. Volatility rises during the crossovers of trading sessions. This increase occurs because a huge amount of news is actively published. Generally speaking, the best time to trade the EUR/USD currency pair depends on the trading strategy that you have chosen.
Read more: The Best Time to Trade USD/CAD
Tips for Trading EUR/USD Using Fundamental Analysis
Successful traders usually plan their trading actions. Banks and hedge funds understand that they are not the only participants on the market. Therefore, a strong opponent can appear anytime. As a result, a trader needs to think of their decisions well and pay attention to the pros and cons of their decisions. Here, fundamental analysis plays a significant role. A list of important economic events that impact the behavior of the EUR/USD currency pair consists of reports on inflation, employment, GDP, PMI, meetings of the ECB and the Fed, as well as the presidential elections in the USA or parliamentary elections in the EU countries. All these events influence the movements of the EUR/USD currency pair price.
- If the EUR/USD currency starts strengthening ahead of an event, a trader should open a buy order above the upper border of the consolidation range and put a sell order below the lower border.
- If the currency pair is dropping or hiking several days before a significant report publication or meeting of the Central bank, a trader needs to follow the 'buy the news, sell the facts' principle.
- In addition, don't forget to put a stop-loss to protect your trade from great losses. A stop-loss order is necessary to put because a level of volatility rises when important economic news occurs.
- The most important condition to purchase the EUR/USD currency pair in the long term is the sync trends in the worldwide economy. If the USD shows strong growth, but there are troubles in the China and EURO areas, you need to sell the currency pair.
- Don't forget to check the commodity and stock markets. If the prices of the S&P 500 and oil are growing at the same time, it's a great reason for purchasing EUR against USD. If the stock index is rising, and the oil is dropping in value, or the price of both financial assets are declining, a trader should sell the currency.
- Apply moving averages in trading the EUR/USD currency pair to identify the current state of the Forex market. If the EMA often crosses the EUR/USD chart, the market is trading flat. If the price is above the indicator, the trend is bullish. If the price is below the indicator, the trend is bearish.
- You need to explore the history of the financial asset's quotes. Events that occurred in the past can repeat in the future.
- Don't practice all the trading strategies at the same time. It's better to choose one that is most suitable for you.
- Don't forget to explore and follow the rules of your trading system.
What is the Prediction for the EUR/USD Currency Pair in 2022
According to the EUR/USD 2022 prediction, the EUR/USD trend will be bearish during Q1 and the Q2 of 2022.
Read more: 10 Most Stable Forex Pairs to Trade in 2022
In conclusion, EUR/USD is one of the major currency pairs along with other currency pairs, including AUD/USD, USD/JPY, NZD/USD, USD/CAD, and USD/CHF. This is one of the most popular currency pairs among traders. The EUR/USD currency pair covers two main economies, European and American.
When it comes to the EUR/USD price movement, we need to mention the most significant institutions that impact the pair:the central banks of Europe and the US.
One of the most important factors that impact the EUR/USD currency pair is CPI which means Consumer Price Index. This is the most significant indicator of economic strength.
When it comes to trading strategies that can be used in trading this currency pair, there are three of the most effective trading strategies, including Breakdown/Breakout, Pullback trading strategy, and the Range Pattern strategy. However, experienced traders recommend choosing one effective trading strategy rather than using diverse strategies at the same time.