EURUSD

When it comes to the foreign exchange market, the euro-U.S. dollar (EURUSD) currency pair is considered by many traders to be the “big one.” It’s the most widely traded currency pair representing two of the largest and most developed of the world’s economies.

EURUSD’s deep liquidity and tight trading spreads make the pair a favorite for traders looking to profit from both shorter-term and longer-term trades. A bonus is the trade’s relatively predictable price action behavior that responds to easily available news.

EURUSD Live chart: Current exchange rate

One-year chart EURUSD

This Forex chart shows the price and volume data for the Euro/ U.S. dollar (EURUSD) currency pair over a one-year period (October 2021 to October 2022).

EURUSD key characteristics

• Major currency pair: The EURUSD is a major currency pair combining two of the most traded currencies in the world, the euro (EUR) and the United States dollar (USD).
• High volume: The EURUSD has historically been the most widely traded currency pair in terms of daily volume.
• Liquid market: The high volume of EURUSD means the pair operates in a liquid market. This enables traders to easily enter and exit the market as they place their trades.
• Volatility: The euro-dollar trade typically has enough volatility to make it a popular trade for those looking to capture profits from sharp price movements.
• Narrow spread: The large volume of EURUSD trades means the bid-ask spread is tight. This keeps the cost of doing business low for traders as it reduces the trading costs associated with each trade.
• Abundance of historical data: The EURUSD is the most popular of Forex trading pairs, consistently ranking highest in the number of trades placed. This popularity means there is an abundance of historical trade data for traders to review to assist in developing their trading strategy.
• Interest rate driven: Actions taken by either the U.S. Federal Reserve or the European Central Bank (ECB) to change interest rates or other monetary policy can drive the price of the EURUSD trade up or down.
• News driven: The EURUSD trade will often react to news impacting the European Union or the U.S., particularly news that relates to large financial or political changes. For example, news related to a change in government leadership, a recession, unemployment figures, or inflation rates can all cause swings in the exchange rate.

Screenshot courtesy of TradingView!

How to trade EURUSD

A euro-dollar trader speculates on the price movement of the currency pair. If the trader believes the euro is going to increase in value against the dollar, they would go long in anticipation of profiting from the rise. Conversely, if the trader believes the euro is weakening against the U.S. dollar, they would go short in hopes of capturing profits when the EURUSD falls.

The trader might use a day trading strategy or a swing trading strategy to accomplish their profit goals. Alternatively, a trader could set up a contract for differences (CFD). A CFD is a trading instrument favored by experienced traders that allows them to use leverage to increase their Forex market exposure, while allocating small amounts of capital. This strategy can magnify potential profits, but it can also amplify losses.

CFD trading is banned in the United States. Many countries, such as the United Kingdom, Germany, Spain, and France (to name a few) allow CFDs in listed, over-the-counter markets.

Why trade  EURUSD

The EURUSD currency trade maintains a large popularity among Forex traders for many reasons. The major currency pair represents two developed and stable economies. This high-volume trade is attractive to traders looking to profit from sharp price movements that often can be predicted in advance. The euro-dollar market is liquid enough to provide good order execution. Additionally, the typically narrow spread keeps trading costs low.

A EURUSD trading strategy

There are many strategies traders employ to identify potential trades. Common strategies include breakout trading, pullback trading, and range-bound trading.

One of the most popular ways to trade EURUSD (and many other currency pairs, as well) is trend trading. In trend trading, the trader will determine the direction the market is going using technical indicators. The trend trader looks for well-defined patterns by scrutinizing historical price movements. This analysis assists the trader to predict what might happen with the trade in the future, thus providing a strategy for placing a trade.

Selection

A favorite saying among trend traders is, “The trend is your friend until the end when it bends.” If you are looking to trend trade the EURUSD, you’ll want to go long (buy) in an uptrend and short (sell) in a downtrend. Thus, your trade selection will depend on the predominant sentiment that is currently directing the price action movement.

Timing

You’ll time your entry and exit into the EURUSD trade by first establishing the peaks and troughs of the trend. Peaks and troughs are the key swings you’ll clearly see by looking at the price action over time.

Management

As part of trade management, you’ll want to be alert for signals that the trend is weakening so that you can exit with your profits locked-in. If trading an uptrend, you’ll need to look for clues that the trend will soon break down. For example, a “lower high” could be a red flag that the bullish momentum is sliding, and the bears are re-entering the market.

On the other hand, if you are trading a downtrend, you’ll want to keep an eye out for indicators that the market is on the verge of shifting upward. Such an indicator would be the appearance of a higher low. This sign that the bulls are gaining traction may indicate it is time to wrap up your trade and pocket your gains.

The best way to understand trend trading is to review actual examples. In this video, The Lazy Trader founder Rob Colville shows you how to spot a Forex trend and reveals the secrets for profitably trading trend markets:

History of EURUSD

The establishment of the euro currency arose from the Maastricht Treaty of 1992. The purpose of the treaty was to lay the groundwork for the European Union, an economic and political alliance of what has since grown to 27 member nations. Of these member nations, 19 use the euro as their official currency.

The history of the U.S. dollar goes back to 1792 and the Coinage Act (also known as the “Mint Act”). This legislation provided for the establishment of the U.S. Mint and the dollar as the country’s currency.

The EURUSD currency pair value is the exchange rate of the euro against the dollar. For example, if EURUSD is 1.5, then this means one euro is worth 1.5 U.S. dollars ($1.50). A trader establishing a long position in EURUSD believes the euro will appreciate against the dollar.

Here are four key events that have caused extreme volatility in the EURUSD trade, along with charts showing the impact.

Growth of the dotcom bubble (1995 - 2000)

Between 1995 and 2000, the exponential growth of “dotcom” companies spurred worldwide investment in U.S. tech equities. Many of these Internet companies were more hype than substance, but that didn’t deter the billions of dollars in investments that poured into them.

As the bubble grew, the value of the dollar outpaced the euro, causing the EURUSD to slide. By March 2000, however, the market had peaked for Internet stocks. Investment capital dried up as it became apparent that many of the dotcom companies would likely never post a profit. Panic selling ensued and fears of an overall slowing in the U.S. economy caused many to also abandon the U.S. dollar.

As we can see in this chart, once the dotcom bubble burst in 2000, the EURUSD trade reversed its trend as the dollar weakened against the euro. The EURUSD made significant gains in the years that followed.

European Sovereign Debt Crisis (2008 – 2012)

Starting in 2008, several member states in the European Union faced a financial catastrophe stemming from high levels of government spending. Governments racked up huge amounts of debt and were unable to pay back their creditors.

In 2009, Portugal, Italy, Ireland, Greece, and Spain all crumbled under the weight of their debt. The real estate market crash and financial crisis of 2007 – 2008 also contributed to the severity of the sovereign debt crisis. Many nations sought bailouts from the International Monetary Fund (IMF), the World Bank, and other EU members.

The European Sovereign Debt Crisis represented a time of extreme volatility for the EURUSD currency trade, as the following chart shows.

Euro collapses versus the dollar (2014 - 2015)

A government’s monetary policy can greatly impact currency trades, as we can see in the EURUSD exchange rate in 2014 and 2015. At the time, Europe’s economy was weak and unemployment was high. The European Central Bank’s strategy to jumpstart the economy relied on quantitative easing. The ECB purchased bonds and simultaneously lowered interest rates.

In comparison, the U.S. Federal Reserve was increasing interest rates. The U.S. economy was significantly stronger than the EU and unemployment was falling. The Federal Reserve had already done a series of quantitative easing starting in 2008 to restart the faltering economy. By 2015, the U.S. was reaping the benefits of its monetary policy. Investors moved their money into the strong U.S. dollar and out of the euro, as we can see in the following chart.

Global inflation crisis (2022)

While many asset classes in 2022 experienced lackluster returns, this is not the case for the U.S. dollar. Over the course of the year, the USD strengthened, while many other currencies did not. This is in part due to the Federal Reserve’s hawkish stance on interest rates.

In an effort to put a lid on high inflation, the Fed increased interest rates throughout the year. These higher rates attracted investors who moved into the dollar and sold off other currencies, including the euro.

But the Fed’s response to inflation isn’t the only factor that pushed the dollar up. Throughout the year, the U.S. economy was stronger compared to European economies. It experienced less direct economic exposure to the Russian-Ukrainian war, particularly in higher energy costs. The U.S. dollar also benefitted from its reputation as a safe-haven currency during times of global financial stress. All these factors combined to strengthen the dollar and push down the EURUSD trade.

Future predictions for EURUSD

Medium-term predictions

As of November 7, 2022, global financial institution ING Bank predicted EURUSD would trade around parity for the near- and medium-term. ING Bank forecasts EURUSD will trade at 0.92 through the end of Q4 2022.

Chris Turner, ING’s Global Head of Markets and Regional Head of Research for UK, stated:

"…the EUR/USD recovery has been pretty lacklustre and can be best described as a bear market consolidation. For reference, 0.9950 is now probably significant intra-day resistance, marking the top of this year's bear channel."

Moving into 2023, ING anticipates little change in the EURUSD trade, forecasting the trade will remain at 0.92 at the end of Q1 2023. According to the forecast, the following months will bring a slight uptick in the trade with EURUSD ending 2023 at 1.00.

Long-term predictions

Longer-term predictions going into 2024 are harder to make. Many analysts cite the uncertainty regarding how effective the ECB and the Fed will be at stemming the tide of inflation.

Other factors that could impact the EURUSD currency pair include a potential global recession in 2023 that could continue well into 2024. Concern regarding the war in Ukraine, skyrocketing energy prices, fuel and commodity shortages all combine to make longer term predictions challenging. That being said, as of November 2022, ING Bank forecasts the EURUSD trade at 1.10 by the end of Q4 2024.

The difference between trading and investing in EURUSD

Trading EURUSD

When you trade the EURUSD currency pair, you are speculating on the exchange rate of the currencies. If the exchange rate of the euro-dollar rises, that means the value of the euro has gone up in comparison to the value of the U.S. dollar, which has fallen.

On the other hand, if the euro-dollar exchange rate goes down, that means the euro has decreased in value, while the dollar has increased. Traders make money by attempting to predict the EURUSD price movement and placing their trades (long or short) accordingly. Many EURUSD trades are short-term, lasting as little as a day before the trader exits the trade.

Investing in EUR and/or USD

Typically, an investment related to an individual currency (EUR or USD) is undertaken with a longer-term perspective. The investor may have various reasons for investing in a specific currency. This includes portfolio diversification or hedging to limit or offset their risk exposure.

Often, people will invest in the U.S. dollar because it is considered a safe-haven currency that represents a stable store of value during times of geopolitical stress. There are various ways to invest in the euro or dollar, such as through exchange traded funds (ETFs) and mutual funds.

5 Tips for Successful use of EURUSD

• Learn the basics. Simply learning the basics of Forex trading is the first step to becoming a successful trader. You’ll want to learn how the market usually behaves. You’ll want to have a good understanding of the factors that cause price movements. As you increase your knowledge, you’ll likely want to learn some simple technical analysis to lower your risk and increase profitability.
• Try out virtual trading. The pressure of having “skin in the game” (that is, real money) often prevents new traders from achieving success. That’s why virtual trading is so beneficial to new traders. With no money on the line, you can learn trading at your own pace.
• Trade with the trend. Many EURUSD traders start by going long on the currency pair. This means they are taking a position that the euro is going to rise against the dollar. There are stretches of time, however, when the better play is to short the EURUSD. Learning how to trade with the prevailing trend can be a valuable skill. We discuss this in our article, “How to Make Money Trend Following.”
• Monitor the news. As an EURUSD trader, you should have a good idea of the kinds of news events that can sway the price of the currency pair. Both expected and unexpected events can significantly impact your trade. For this reason, it’s important to monitor the news, both from the standpoint of protecting current trades and to discover developing trade opportunities.
• Plan for good times and bad. Successful traders understand the importance of risk management. A risk management plan helps take the emotion out of trading by clearly outlining the trading strategy. This includes a trade’s entry point, exit point, stop-loss, and profit potential.

What are the risks with EURUSD?

The main risks of the EURUSD trade are leverage, volatility, global events, monetary policy changes, and “bot” competition for trades:

• Leverage risks occur when a trader trades on margin. Margin trading is a double-edged sword. While it may increase your trade profitability, it may also increase your risk and losses.
• Volatility in the trade can quickly shift prices faster than a trader can react. Unexpectedly high volatility can turn a profitable position into a losing one.
• Global events (such as wars, riots, food shortages, pandemics, recessions, and political upheavals) pose risks that can quickly swing currency prices.
• Monetary policy changes also have a significant impact on the EURUSD trade. Either the European Central Bank or the U.S. Federal Reserve can change interest rates or implement money supply policies that will then be reflected in the EURUSD exchange rate.
• Forex trading robots (or “bots”) have gained a foothold in the Forex market. Automated software programs now buy and sell currency pairs once pre-selected criteria trigger a trade. These trading algorithms now compete with human traders to execute trades at the best prices.

EURUSD: General terminology

Major currency pair: Major currency pairs are those that are the most traded on the forex market. The EURUSD is one of the major currency pairs.

Base currency: The base currency is the currency listed first in a currency pair. It is the currency the trader intends to buy or sell. In the EURUSD currency pair, the base currency is the euro or EUR.

Quote currency: The quote currency is the currency listed second in a currency pair. The quote currency is the price you’ll pay to buy a single unit of the base currency. In the EURUSD currency pair, the quote currency is the U.S. dollar or USD.

Pips: In forex trading, a “pip” is an acronym that means “price interest point.” It can also mean “percentage in point.” A pip measures the change of a trade value in a currency pair’s exchange rate. Traders calculate pips using the last decimal point in the currency pair price.

Parity: When two currencies in a currency pair are of equal value, they are said to have reached “parity.” Traders can see when a currency pair has reached parity when the exchange rate between the two currencies is exactly 1.0000.

European Central Bank (ECB): The European Central Bank (ECB) is responsible for setting the monetary policy of the member nations of the European Union (EU) that use the euro as their official currency. The ECB’s monetary policy decisions can greatly impact the EURUSD exchange rate.

Federal Reserve System: The Federal Reserve System (often referred to simply as “the Fed”) is the central bank and monetary authority of the United States. The Fed’s decisions on interest rates and other matters greatly influence the currency markets. Actions taken by the Federal Reserve can cause fluctuations in the EURUSD exchange rate.

Conclusion

Whether you’re a new or seasoned Forex trader, the euro-dollar pair offers you plenty of trading advantages. The highly liquid market means you’ll be able to quickly enter and exit trades while keeping your trading costs low.

You’ll find that EURUSD responds to information—such as interest rate changes and economic reports—that is widely and easily available. This gives the trader the ability to anticipate price movements in advance and develop a trading strategy.

The pair is “trend friendly,” meaning that with a little practice you’ll be able to spot and follow trends as they develop. Indeed, some multiyear trends give traders the opportunity to make gains repeatedly over the long term simply by spotting trends and reacting accordingly. This is one of the biggest benefits of trading the EURUSD pair.

Frequently Asked Questions (FAQs)

Is EURUSD volatile?

The EURUSD is not an overly volatile currency pair, for the most part. The currency pair does have enough volatility to allow traders regular opportunities to make money from sharp movements that can occur over a day, week, or month. The trade is typically not so volatile that the market becomes illiquid, preventing traders from easily executing trades. However, the EURUSD trade has historically experienced heightened volatility during times of economic and political instability.

What is the nickname for EURUSD?

A common nickname for EURUSD is “fiber” or “fibre” (preferred British spelling). Traders will say they are “trading the fiber” in reference to trading the euro/U.S. dollar currency pair.

This moniker came about as a playful nod to the nickname for the currency pair GBPUSD, which is “cable.” GBPUSD achieved this slang name in reference to the deep-sea cables that transmitted trade details from London and New York City starting in the mid-1800s. In the case of the EURUSD trade, “fiber” refers to the fiber optic lines that transmitted trade details when the pair first started trading in 1999.

How much is traded in EURUSD a day?

From January 1, 2022 to October 31, 2022, the year-to-date average daily volume traded for EURUSD was 278,396 contracts.

Is the Euro a safe currency?

Some economists now see the euro as an alternative safe-haven currency. They believe the euro could soon join the ranks of the U.S. dollar (USD), Japanese yen (JPY), and Swiss franc (CHF) as a safe-haven currency.

According to the Economic Alternatives Journal, the euro is in competition to be considered a safe-haven currency because it generally remains stable despite changing interest rates in the European Union member nations. The currency also tends to remain stable because it is accepted by so many nations.

However, there are economists that oppose labeling the euro as a safe-haven currency. They note that its stability is negatively impacted by the weaker and smaller exporting Eastern European countries that are part of the EU.

Is the EUR correlated with gold?

The euro is often positively correlated with gold. This means you’ll often see the euro trending upward while gold is experiencing gains (and vice versa).

This correlation traces back to the inverse correlation the U.S. dollar has with gold. Both the euro and gold—which are seen as alternatives to the dollar—tend to rise when the greenback is floundering. It’s important to note the gold/euro correlation is far from perfect. Many factors can impact and override the correlation, such as political or economic upheavals that sway the Forex markets.

Does EURUSD have a big spread when trading?

The EURUSD currency pair typically has a narrow spread when trading. In Forex trading, the spread (also known as the bid/ask spread) refers to the difference between the buy and sell prices of the currency pair trade.

This price difference is the cost of the trade and represents the broker’s compensation for handling the transaction. A narrow spread indicates the costs associated with the trade will be lower, while a big spread indicates higher trade costs.

Which is that safer currency, EUR or USD?

The U.S. dollar (USD) is generally thought to be safer compared to the euro (EUR). As major currencies, both the EUR and USD are safe and stable, especially when compared to exotic currencies of emerging market economies. However, the USD holds the edge over EUR because of the United States’ significantly larger economy and the USD’s status as the world’s reserve currency.

Should I invest in EUR or USD?

Both EUR and USD are major currencies from stable economies that can offer investors several benefits. Having some exposure to a select group of currencies can help investors with portfolio diversification, along with hedging against economic and political risk.

To determine if currency investments are right for you, we recommend you review our guide explaining the Forex market and how it works.

Should I trade EURUSD?

To decide if you should trade EURUSD, you’ll want to review your personal situation as an investor along with the factors that are affecting the currency pair at the time you are contemplating placing your trade. Personal factors you’ll want to consider include your risk tolerance and skill level as a trader. Trading factors include volatility, liquidity, monetary policies impacting each currency, world events, and market conditions.

To get a better idea if trading EURUSD is right for you, read our “Beginners Guide to Forex Trading.”