There are so many tradeable assets in the financial trading markets. For this reason, many traders ask themselves, where is the market trading? The answer is: the EURUSD! Of course, this is not the only traded asset and there are many popular assets on the market. However, the EURUSD is considered as one of the most traded currency pair globally.
What do we need to keep in mind while trading the EURUSD?
The US Dollar
For the US Dollar and the United States, the main talking point remains hyperinflation and the lack of employment in the US compared to the past 5 years before the current crisis. Hyperinflation is known as high and rapid levels of general price increase within the economy. Hyperinflation is known to be harmful as it devalues the currency’s purchasing power as well as risks jobs in the longer term, specifically if wages remain behind inflation.
The question is whether inflation is out of control or is indeed only temporary as the US Central Regulator advises. With an inflation rate of above 5%, the chairmen of the Federal Reserve confirmed yesterday that the Central Bank is still not warming up to increasing interest rates. While speaking at a conference last night the Chairman advised that hikes where not currently even being considered and unexpectedly advised no intention to reduce the current quantitative easing program. Fed Chair Powell advised that even though the economy is recovering, they are far from an entirely recovered economy.
The lack of hawkish momentum from the Federal Reserve in response to the rate of inflation has fuelled a price movement of almost 120 pips on the EURUSD this week alone. We can see here the importance for traders to keep an eye on both inflation as well as any monetary policy indications.
Meanwhile, the epidemic situation still remains a major influence and in the United States continues to escalate, tempting the Biden administration to take new measures. The introduction of compulsory vaccination for civil servants as well as the need for them to wear medical masks are currently being considered. Despite the difficult situation, the latest economic data in the US were positive. The consumer confidence index, published yesterday, rose from 128.9 to 129.1 points instead of the expected decline.
How does the Euro differ?
The Euro is very different to the US Dollar including the correlations, volatility and risk appetite. The US Dollar is known as a safe haven currency and therefore can be influenced by risk profiles within the market. The Euro is the second most traded currency in the world after the US Dollar.
Looking and the Euro Currency Index we can see the currency has increased over the past two days. The Euro currency index measures the value of the Euro against the Dollar, Pound, Yen and Franc. This is done in order to obtain a stronger indication of the price movement amongst Euro pairs.
Traders should also keep in mind the Euro has generally declined over the past two months even though the currency has increased over the past three days. The main focus in Europe tends to currently remain on economic restrictions, Covid cases as well as economic figures such as PMIs and other indexes.
Looking at the latest developments in the Eurozone, investors are focused on the publication of a block of economic statistics from Germany. July data from the labour market turned out to be positive: the number of unemployed fell by 91K (against the forecast of 28K), and the unemployment rate fell from 5.9% to 5.7%, which also turned out to be better than expected. This data suggests that the German economy continues to strengthen and that companies are hiring more employees. The growth of inflation in Germany in July 2021 accelerated noticeably from 0.4% to 0.9% MoM and from 2.3% to 3.8% YoY. Experts believe that the increase in the indicator is associated with an increase in the cost of commodities, as well as the cancellation of a temporary reduction in value added tax.
The unemployment rate had also fallen in the hardest hit economies such as Italy where the unemployment rate fell to 9.7% from 10.2%, in Greece the unemployment rate fell by 1.2% and in Spain by 0.72%. However, investors are keeping a close watch on the protests and demonstrations where over 1 million individuals across Europe have taken to the street to oppose various measures. Any increase in lack of political stability can negative affect the currency.
So, the most traded currency pair on the market can be viewed via different methodologies. However, it is important to ensure the facts are viewed regardless of the methodology or strategy. As mentioned above this can include economic statistics, risk appetite and price action.
Disclaimer: This article is not investment advice or an investment recommendation and should not
be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
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