EUR / USD currency pair trading – a guide for beginners

Euro / USA. the dollar currency pair denotes the exchange rate between the euro and the US dollar and expresses it as the number of dollars needed to buy one euro.

For example, if the EUR / USD exchange rate is 1.15000, it means that you need $ 1.15 to buy one euro. In this pair the euro is the base currency and the US dollar is the quoted currency.

With an impressive daily turnover of around $ 1.173 trillion, EUR / USD is the most liquid currency pair in the world. The total daily turnover in the foreign exchange market is approximately 5.1 trillion USD, which means that EUR / USD represents 23 percent of this huge amount.

History of the euro currency

The euro is a much younger currency than the US dollar. The euro was introduced in 1999, although it was not used as a virtual accounting currency until January 1, 2002, when the first euro banknotes and coins came into circulation.

The euro soon became the official currency of the European Union and replaced many currencies of different members. Today, it is the common currency of 19 of the 28 countries of the European Union.

US dollar

Contrary to the euro, which has been in circulation for less than 20 years, the US dollar has been the standard monetary unit of the United States for more than 200 years.

The US dollar is the most traded currency on the planet. It is also the world’s first reserve currency.

How EUR / USD is traded

While there are other ways to trade this currency pair, we will only focus on how this is done with Forex retail.

Pip value EUR / USD

To determine the pip value of EUR / USD, we must first consider what a pip is. If EUR / USD is trading at 1.00010 and the exchange rate is moving to 1.00020, it has moved one pip more. The fourth digit after the decimal point is called the pip.

To calculate the pip value of EUR / USD we will use 1K lot as an example. At EUR / USD one pip is 0.0001 or 1/10000 of one US dollar. Multiply this by 1000 and you get $ 0.10. This is the pip value of the micro lot (1k lot) EUR / USD.

Plot size EUR / USD

The standard lot on forex is 100,000 of a particular currency pair. However, most retail forex brokers offer lot sizes of 0.01 lots, which is 1000 of a particular currency pair. This is called micro lot. Some trading platforms refer to this as 1K lot lot. Others refer to the 1K group as a single unit.

The smallest price unit in the price list. It is the fourth number after the decimal in most prices. A change of 1 tap is a price movement of 0.0001.

For a really small investor, the 1K series sounds like a really big trade. After all, how could someone with a $ 500 account open a $ 1,000 position? Well, the great thing about forex trading is that retail brokers allow you to trade leverage.

The leverage offered by forex brokers at retail usually varies between 1: 100 and 1: 1000. Some brokers offer ridiculously high leverage of 1: 2000, 1: 3000, and even 1: 5000. Of course, some countries regulate the amount of leverage you can use. as a retail forex trader, like the United States that allows a maximum leverage of 1:50.

Take for example a 1: 100 lever. If you have a $ 500 account and want to open a 1K store at EUR / USD, you will need less than $ 11.00 to open this position. This is based on the exchange rate of $ 1.06000 for 1 euro. Without the use of leverage this would not be possible as 1K lot EUR / USD is worth 1060 USD.

Be sure to use the appropriate lot size. Exaggeration is dangerous!

Profit and loss calculation

Here at FXLeaders, we are taking big steps to offer traders the best possible forex signals. In 2019 alone, we packed a phenomenal 2,118 taps! A significant amount of these gains came from our EUR / USD signals.

Let’s calculate how much money you would make if you traded a EUR / USD signal with 12 micro lots and reached the goal of gaining 276 pips. 12 micro lots, 12,000 is the currency pair EUR / USD. If we multiply that by $ 0.0276, which is 276 pips, we get $ 331.20. (12,000X $ 0.0276 = $ 331.20).

If this sounds a bit complicated, you can just multiply the pip value of the 1K lot, which is $ 0.10, by the number of micro-markets traded and multiply this number by the number of pips you make: 0.10 pip values ​​X 12 micro lot X 276 pips = 331.20 USD.

Instruments linked to EUR / USD

Correlated currencies

Of the major currencies, the Swiss franc has the highest correlation with the euro. Therefore, the currency pairs EUR / USD and USD / CHF are inversely correlated to a large extent. The one-year correlation between EUR / USD and USD / CHF is -0.95, which means that they are, so to speak, almost perfectly reversed.

Generally speaking, other European currencies are also highly correlated with the euro, for example, the Hungarian forint (HUF).

GBP / USD is also correlated with EUR / USD and these two pairs have a one-year correlation of 0.77, which is considered a relatively high correlation.

When examining currency correlations, it is important to understand that short-term and long-term correlations between the same two pairs can be extremely different. For example, the one-hour EUR / GBP and EUR / USD correlation is currently 0.96, meaning that the two pairs were basically moving in tandem during the last hour.

However, their one-year correlation is −0.44, meaning they correlated moderately inversely over the past year. It should be borne in mind that correlations are not set in stone and can change at any time, even if it is only a short-term deviation.

Correlated capital indices

Global stock indices are generally inversely related to EUR / USD, especially with European indices. For example, Dax (German 30) and EUR / USD have a one-year correlation of -0.78, which is considered a strong inverse correlation.

Major economic events affecting EUR / USD

Of the many economic events affecting EUR / USD, there are a few that can cause significant volatility in this exchange rate:

1. Monetary policy – actions and comments of central banks

Monetary policy is certainly one of the most important drivers of EUR / USD. The United States Federal Reserve and the European Central Bank are in charge of their countries’ monetary policies.

ECB (European Central Bank)

When the Fed and the ECB comment on or take action on interest rates, quantitative easing, inflation and economic growth forecasts, this often causes violent shifts in the EUR / USD exchange rate.

2. Economic indicators

Economic indicators are used to analyze the performance of a country’s economy and predict future economic growth. There are three main categories of economic indicators: leading, lagging, and random indicators.

Indicators such as GDP numbers (gross domestic product), CPI numbers (consumer price index), interest rate decisions, unemployment rates, wage growth, industrial production, and retail sales numbers are regularly published in the US and Europe.

Although these are not the only important economic indicators, they have great potential for moving EUR / USD, especially decisions on interest rates, GDP and CPI and labor market data (such as US payroll numbers, unemployment rates, etc.).

Of the European countries that use the euro, Germany, France and Italy have the largest economies. Germany is the largest, followed by France, and Italy in third place. Therefore, when the economic indicators of individual European countries are published, we can focus on these three countries, especially Germany.

Although eurozone economic news can significantly shift the EUR / USD exchange rate, most market economic news usually originates in the United States.

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