This educational series is intended to point out to what is more important when trading the eurusd pair and what is actually making the currency pair move. Traders in Forex CFDs and Binary Options can use the knowledge
Trading a Currency Pair – EURUSD
A good starting point is the understanding that this is indeed a currency pair meaning the exchange rate moves are based on the differences between the two economies it represents: the Eurozone and US economies.
That being said, the economic calendar plays an important role in taking a trading decision in any currency pair, not only in the EURUSD.
What makes the eurusd special is the fact that it is the most liquid currency pair of them all as most traders are changing hands on the pair on a daily basis.
Spreads are also low and this makes the pair appealing for the FX traders and therefore its moves should influence binary trading as well.
The important things to consider about the eurusd before entering a trade are:
-it is moving mostly in the European and North American session, so if you trade binary options with short expiration dates it is better to avoid the Asian session as most likely during that time the eurusd will barely move;
-Asian session is highly interesting for trading ranges, namely One Touch binary options as the eurusd is consolidating in Asia;
-EURUSD is the most popular currency pairs to be traded for the simple fact that it represents two of the biggest economies in the world: the US economy and the Eurozone economies.
Important Economic Releases to Watch in Europe
It goes without saying that economic news out of Europe are hardly influencing the way the EURUSD pair is moving as well as economic news out of US.
When it comes to Europe, the most important is the CPI (Consumer Price Index) as it is representing inflation and the ECB (European Central Bank) is looking at inflation for setting up the monetary policy.
The next one in the order of importance is the PMI (Purchasing Manager Index) release as it shows if a sector is contracting or expanding and offers a clue regarding how the central bank is going to interpret the data: bullish or bearish, hawkish or dovish.
GDP (Gross Domestic Product) and unemployment rate are also pieces of data traders take into consideration when trading the EURUSD but the Euro does move when ECB is holding its monthly meeting as each and every meeting is being followed by a press conference. During this press conference, press representatives are asking questions and ECB President is answering and as a consequence market is fluctuating quite much.
After all, economic releases in a month are only for traders to form an educated guess about what the central bank is going to do next time a meeting takes place. If inflation, for example, is falling way below ECB’s target, then it is only normal to expect rates being cut and thus a negative for Euro as a whole and for EURUSD in particular.
Important Economic Releases to Watch in United States
When it comes to United States, we must start with the fact that this is the biggest economy in the world and it goes without saying that a lot of important economic news are being released each and every month.
Because the central bank of the United States, the Federal Reserve, is having a dual mandate, it is obvious that jobs data (Non-Farm Payrolls) and inflation (CPI) are the ones that really matter. However, there are some other pieces of economic releases that influence markets, as follows:
- ISM (Institute for Supply Management) Manufacturing and Non-manufacturing (these are the equivalent of Europe’s PMI),
- Retail Sales (released on a monthly basis),
- GDP (release on a quarterly basis),
- PPI (Producer Price Index),
- ADP (private payrolls),
- Durable Goods Orders, etc.
What to Expect from Economic Releases
Expect a lot of volatility from economic releases as markets are moving based on technical factors but they need a reason for that move, and fundamental factors, like the time when economic news are released, are the reason why markets are moving. Releases are a good time to trade, however, the fact that both types of analysis work together might make it a bit tricky sometimes.
To give you an example, let’s assume that during the London session, unemployment rate for Eurozone countries is being released and it comes way higher than expectations. This is enough to send the EURUSD pair lower as no one is really interested to own Euro anymore as chances are that the ECB, the European Central Bank, will try to ease monetary policy as a consequence in order to accommodate for the higher unemployment rate across Europe.
However, if a couple of hours later the GDP in the United States comes way lower than expectations and shows lack of growth, or even recession, then just like that the EURUSD pair will start to move higher and completely ignores the previous European data.