Tips for Trading the Major Currency Pairs
Trading the US dollar opens a whole new market to the potential trader, a market where one can participate in the cyclical nature of the global economies. Wish to diversify away from the US dollar... buy the Euro. Wish for movement in the market... trade the British Pound. Believe that Japanese economy is going to grow... buy Japanese Yen. Geopolitical tensions... buy the Swiss Franc. Trading majors gives you choices.
All About the Majors: EUR/USD
Making headlines around the globe, the EUR/USD is perhaps the best known pair in the world! For the past 3 years it's been making high after high, but a reversal could send the price plummeting! In the meantime, it provides plenty of trading opportunity as it ranges between extended breakouts.
The euro has been called the "anti-dollar" since it is highly sensitive to US data. Because the recovery in the US has been uncertain, the market closely watches developments in the US economy to determine the strength of the recovery. Fears that the US is hitting a "soft patch" in its economic growth generally boost the euro.
Though the EUR/USD actively trades 24-hours a day, the most action is concentrated in the time when the US and European banking hours overlap, from 7:00 AM EST to 10:00 AM EST. Of all the majors, this pair best reflects how the US economy is doing compared to the rest of the world.
EUR/USD Profile
The US economy is dependant on imported oilso movements in the price of oil tend to impact the value of the dollar!
Average daily range: 111 pips
Tends to consolidate into wide ranges after sharp trends
Good for: trading in all time frames, depending on strategy
RefcoFX Analyst Says: The battle rages on! Dollar bulls have been slugging it out with bears for years in this pair. Watch the US economic data closely and take advantage of uncertainty about US economic recovery by adopting range trading strategies in the absence of a trend.
HOT Buttons: What moves EUR/USD?
Surprises in US economic releases This pair is hypersensitive to US data and will move when results come as a surprise- especially indicators that measure growth or recovery in the US.
Talk of Euro as an alternative reserve currency Because the US dollar is held as a reserve currency by many banks around the world, a diversification into euros would drive the value of the euro up causing a sharp move in the pair.
Interest rate differentials As the Fed raises interest rates, money will flow into the US as investors move to capitalize on these higher returns, boosting the value of the dollar.
Trade Deficit Because the imbalance of more imports vs. exports has the potential to reduce the value of the dollar in the long run, the market is very concerned with the trade balance in the US. Changes can cause a big shift in the value of the US dollar.
Fundamentals to Watch
FOMC Rate Decisions Watched closely since any increases in the interest rate automatically bring in foreign capital, increasing the value of the dollar.
US Non Farm Payrolls Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the US.
U.S. Current Account...
US Trade Balance A measure of how much the US exports compared to how much it imports. To many net imports can drive the value of the dollar down, since more capital is leaving the US and being sold abroad, which drives down the value of the dollar.
US TIC Data Treasury Inflow Capital is a measure of how much foreign buying of US securities is happening. This can offset an imbalance of too many imports, since money is coming to the US to purchase goods which drives the value of the dollar back up.
US Retail Sales The US economy is largely driven by consumer demand. If this number is unhealthy, it can indicate a decline.
FOMC Minutes The breakdown of Federal Open Market Committee meetings. Scoured for any clues about how the Fed perceives the state of the Economy. Since the Fed makes interest rate decisions, insight into their outlook can help the market predict the interest rate outlook.
European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy.
European Trade Balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods.
European CPI Consumer price index, a measure of inflation in Europe. Inflation that is too high or too low may prompt Europes central bank to raise or lower interest rates.
ECB Rate Decision Refers to the European Central Banks monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.
IFO Business Climate Survey Acts as an early indicator for economic development in Germany, which is Europes largest economy. Measure of sentiment that is weighted by industry to provide a composite outlook.
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