Characteristics of the currency pair EURUSD
What is a currency pair?
A currency pair is a quotation for two different currencies. It is the amount you would pay in one currency for a unit of the other currency. For example, when a trader quotes EUR/USD 1.13 (let's say), that means the trader can exchange 1 EUR for 1.13 USD.
When the value of currency changes, it changes relative to another currency. If the EURUSD quote moves from 1.13 today to 1.15 tomorrow, it means that the EUR has appreciated against the USD or that the USD has depreciated against the EUR as it is worth more to buy 1 EUR.
What currency pairs are there?
The definition of significant currency pairs will vary among traders, but most will include the four most popular pairs for trading - EUR/USD, USD/JPY, GBP/USD and USD/CHF. "Commodity currencies" and "cross pairs" are also classified as major pairs.
1. Major currency pairs.
The currency pairs with the highest trading volumes are listed below. They represent some of the world's largest economies and are traded in high volumes. Higher volumes usually result in lower spreads:
- EUR / USD is for the EUR/USD;
- USD / JPY - dollar-yen;
- GBP / USD - pound dollar;
- USD / CHF - Swiss franc.
- EUR/USD is the currency pair with the highest trading volume in the world. The euro and the US dollar represent the world's two largest economies, the US and the European Union.
- USD/JPY (US Dollar/Japanese Yen) is the second most popular currency pair. The yen is often used by traders who borrow and invest it in currencies with higher yields. The Bank of Japan has struggled with low inflation and growth for many years and, as a result, has a very low-interest rate.
- The USD/JPY also trades at extremely high volumes, resulting in low supply/demand spreads and plenty of liquidity. Therefore, the yen is also known as a safe currency among traders.
- The GBP/USD (Pound/USD) gained its nickname "The Cable" due to the submarine cables used to carry trading orders across the Atlantic Ocean.
This major forex pair shares similarities with the EUR/USD. Both are strongly correlated as the UK economy is linked to the European Union. However, please do not jump to conclusions, as their correlation is not as evident as it might seem.
- USD/CHF (US Dollar/Swiss Franc) When risk/volatility appears in the market, traders operate on the Swiss Franc as the Swiss economy has less risk.
2. Commodity currencies.
Commodity currencies such as the Australian dollar (Aussie in traders' jargon), Canadian dollar (Loonie) and (New Zealand dollar) Kiwi are forex pairs that are heavily influenced by commodity prices:
- AUD/USD (Australian Dollar/US Dollar), or 'Aussie', is heavily influenced by commodity production, beef, wool and wheat production. The Aussie also tends to rise when China does well, as the two countries are major trading partners. The Reserve Bank of Australia (RBA) also has a significant influence on AUD / USD.
- The USD/CAD (US Dollar/Canadian Dollar) or 'Loonie' is also strongly influenced by oil, timber and natural gas. Interestingly, the Canadian dollar is closely linked to the US economy.
- The NZD/USD (New Zealand dollar/US dollar), also known as "Kiwi", is strongly influenced by agricultural data releases and tourism.
3. Cross pairs.
Cross pairs do not include the US dollar. Historically, currencies had to be exchanged for US dollars before they could be exchanged for other currencies. Popular cross pairs are EUR / GBP, EUR / JPY and EUR / CHF:
- This cross pair explores the link between the UK economy and the European Union. Predicting EUR / GBP can be difficult as the economies are interrelated.
- Some traders find it easier to predict large EUR/JPY than USD/JPY, as the US dollar and Japanese yen are seen as safe currencies. This makes EUR/JPY a famous currency pair.
- Like EUR/JPY, EUR/CHF is gaining popularity since the franc is a safe currency. The EUR/CHF is thus also seen as a popular currency pair during market fluctuations.
What is the exchange rate?
The exchange rate is the value of one country's currency in other countries' currencies. It determines, for example, how much a dollar or a yen is worth in euro.
What affects the exchange rate?
Like any commodity, the price of a currency is determined by supply and demand. For example, a country is developing production, entrepreneurs need money, and they are willing to offer investors a good return. If foreign investors want to invest in these projects, they will need the local currency of the country. Therefore, the demand for it will increase, and consequently, the exchange rate will go up.
Sometimes the opposite happens. For example, the government starts printing money to pay its domestic debts. As a result, there is too much money in the national currency, and its value, the exchange rate falls.
In reality, the exchange rate of a currency depends on many factors. Even political news influences it. So if you decide to buy or invest in a currency pair, be sure to study everything about these currencies carefully.
A trader must be fluent and confident in the calendar structure of trading sessions at the global interbank currency level. Knowledge of this aspect will allow the trader to intelligently and reasonably choose the most favourable time for making transactions.
As you know, currency exchange transactions in the forex market are carried out 24 hours a day, Monday to Friday. However, Saturdays and Sundays are considered days off, as the commercial banks, which provide many currency exchange transactions, are not open on those days.
So why is forex trading open 24 hours a day? There are at least two critical factors to this:
- The existence of time zones, which alternate in a specific sequence.
- The existence of a constant need for certain economic actors to exchange currencies.
Looking at the structure of the trading sessions from a purely technical point of view, trading in this market usually starts in Tel Aviv on Sunday and finishes in New York on Friday lunchtime. However, the Tel Aviv trading session is so small in scale and duration that many traders believe that trading begins in Wellington, New Zealand. But it is worth mentioning that trading in Wellington is not considered significant because of the low trading volumes. In principle, this is typical for this geographical segment of Forex.
The genuinely active bidding begins when Sydney and Tokyo wake up. And the opening of the session in London leads to a surge in currency trading volumes in the global market.
The London venue is considered to be the largest and most significant in forex.
The New York-based platform is the second largest in terms of size and volume of foreign exchange transactions.
It is noteworthy that the highest trading volumes are characteristic of forex, precisely when it is midday in London and morning in New York.
After the London market closes, New York supports forex trading until the close of the session.
The opening of the session in Sydney signals the start of a new trading day and a daily cycle of shifting trading sessions.
Trading time frames
What is the time frame?
A time frame is a time frame for displaying price movements on a price chart. Price movements on the chart are usually represented in candlesticks (or bars), which have the same period corresponding to the selected time frame. Thus, the higher the time frame, the larger the "volume" of price movement is in each candle on the chart.
You can set up any time frame for displaying the price chart if you want, but usually, the primary, commonly used time frames are used for trading:
- MN is a monthly time frame. Each candlestick represents a price movement within a month.
- W1 - weekly, each candlestick shows the price movement within a week.
- D1 - daily, each candlestick shows price movement during a day.
- H4 - four-hour, each candlestick shows price movement within four hours.
- H1 - hourly, each candlestick shows price movement within one hour.
- M30 - 30-minute, each candle shows price movement for 30 minutes.
- M15 - 15-minute, each candlestick represents a 15-minute price movement.
- M5 - 5-minute, each candlestick shows a 5-minute price movement.
- M1 - 1-minute, each candle shows one-minute price movement.
The time frame for displaying the price chart is selected directly in the trading terminal.
How do I choose a time frame?
Usually, more than one time frame is used for analyzing the price chart. By examining price movement on different time frames, a trader can more widely assess a financial instrument's dynamics. In addition, it helps to make price movement forecasts for different time frames depending on a trading strategy.
While it is possible to use all time frames at once for the general analysis of the financial instrument dynamics, it is necessary to "narrow the horizon" for transactions. Many trend strategies based on the main postulates of the analysis use two working time frames:
- The main time frame is the senior time frame, where we use fundamental and/or technical analysis to assess the selected instrument's current state and prospective movement. We determine the current trend and, respectively, the direction in which we will trade.
- An additional time frame with a smaller period gives direct signals to enter the market (and possibly to exit) in the direction selected on the main time frame. But, again, indicator signals, levels and chart patterns, etc., may be the basis for a deal.
To determine which time frames should be used as a basis for trading, you need to understand which trading style suits you best. To do this, you need to consider two essential criteria:
- The amount of time to trade - how much of your time you are willing to devote to trading.
- Your trading account balance - how much money you can trade.
A combination of these two criteria will determine your trading style: long-term, mid-term or short-term. In the rare case of a thriving variety of plenty of free time and a solid deposit, you can choose any trading style that proves to be the most comfortable and/or profitable for you.
Features of the EURUSD currency pair
The EURUSD is the most liquid and most popular currency pair in Forex.
The undisputed market leader in terms of trading volume is the currency pair EUR/USD, which is at the top of most traders' preference lists. The euro (EUR) is included in this currency pair as the base currency, while the US dollar (USD) is quoted.
A rise in the EUR/USD currency pair means that the EUR is getting stronger against the USD (it takes more and more USD to buy a single EUR). At the same time, a decline in this financial instrument means that the US dollar is strengthening and the euro is losing ground. As a result, the quote is "straight", and the currency pair itself tops the list of "majors".
The first component of the EUR/USD currency pair was the Euro. The Euro became available to participants in financial markets as a currency of account in 1999, while the first banknotes and coins did not appear until 2002. By 2006 the Euro had accumulated over 610 billion euro notes, which made the currency a world record holder. No other currency (including the US dollar) can boast of this amount of cash.
The European currency has been of great interest to traders since its inception in two aspects:
- First, as a counterbalance to the US dollar in its role as a universal means of payment and exchange (the Euro is the world's second reserve currency).
- Secondly, as an instrument for investing in relatively stable and strongly developing European economic systems (the Euro is the national currency for 17 out of 27 (at the moment of writing this article) member-countries of the Euro-zone).
The second component of the EUR/USD currency pair is the American dollar. The US dollar is the world's primary reserve currency. Like the euro, it is used in many countries as the leading national currency and as a universal means of payment/exchange. Also, USD can be used as a means of saving/storing capital.
We should note that the design of banknotes has changed many times, but all national banknotes issued since 1861 are legal tender.
How to start trade EURUSD in South Africa?
The currency pair EURUSD attracts traders from all over the world with its high liquidity. This currency pair is easy to trade for beginners and professionals alike. If you are also interested in this currency pair, you can start trading it now.
To trade this currency pair, you need to register on the platform. Then, the website will ask for some of your information to verify your identity.
You can also use your demo account to trade with virtual money. This way, you can try out the different features of the platform and test your strategy.
To start trading on a real account, make a minimum deposit in any way you like.
To be successful in trading, be patient, expand your horizons of knowledge, and practice. You will be successful.