EUR/USD has been the most traded currency pairs in the world for several years and is one of the favourites among forex traders. There is always enough movements to take daily profits.

Fundamental Analysis of EUR/USD

EUR/USD has been the most traded currency pairs in the world for several years and is one of the favourites among forex traders. The main reason for the latter is because it is an actively traded pair with moderate volatility which makes it compatible for either scalping or day trading. There are always enough movements to take daily profits, especially at times around the release of fundamental news.

 

EUR/USD: Underlying Fundamental

US Dollar, the United States of America's currency, by itself is the most traded currency in the world. Of course, the USD is the world's reserve currency, so it is very influential. While the Euro is the currency used by European Union and served as the national currency in 19 of 28 EU countries, making it the second biggest currency in the world after USD, although not all of EU adopted it.

EUR/USD is extremely sensitive to economic reports from the US, as well as other factors that highly influential towards US Dollar, such as commodity prices. On average, EUR/USD may move around 100 pips a day; but on particularly high impact news releases, the pair can shot up or drop down as much as 150-250 pips in a few moments. At the same news release, other major pairs may not result in similarly spectacular fashion.

Additionally, forex brokers usually apply lower spreads to EUR/USD pair compared to other currencies. This factor makes the pair very suitable for scalpers as the costs for trading the pair becomes more efficient. However, EUR/USD pair is also good for day trader and swing trader, although if you are one of them then you have to be careful of price spikes every now and then as the pair will often spontaneously reacts to high-impact news before going back to its original trend.

 

Influential News of Eurozone and US

In terms of impact, news can be divided into high, moderate, and low impact. However, it must be noted that the usual influence of moderate-impact news release may become higher during quiet market for a short time. In this sense, here is some moderate-to-high impact schedule you should note if you want to trade EUR/USD pair:

  1. FOMC Meeting and subsequent US The Fed interest rate decision.
  2. FOMC Meeting minutes publication (two weeks after the meeting held).
  3. US The Fed/FOMC Chairperson speeches.
  4. US GDP
  5. US Nonfarm Payrolls report which also includes wages and unemployment rate.
  6. ECB rate decision and subsequent ECB President Speech.
  7. IFO Business Climate Survey
  8. European trade balance.
  9. Eurozone GDP.
  10. Eurozone inflation.

Apart from those ten, it is also important to note sharp decline or increase on US and German bonds yields when there is a steep gap between US and Eurozone's interest rate projection. As well, it will be useful to observe stock market indices such as Dow Jones and S&P100 in order to ascertain market conditions. The EUR/USD pair movement often mirror investors' sentiment in bonds and stock market.

 

Useful Tips

If you are going to trade the EUR/USD, it will also be useful to remember these tips:

  1. The best moments to trade EUR/USD is at overlaps between Europe and US trading hours, at around although you can actually trade the pair anytime from the market opening on Monday to market closing on Friday.
  2. The EUR/USD can be used as a measure of how strong the US Dollar is in the current market. The more accurate measure is the Dollar index, but EUR/USD can also be used for a similar purpose.
  3. Due to large movement tendencies during the certain news releases, it is advisable for novice traders to distance themselves from the market before and after the NFP report and FOMC rate statement.
  4. The EUR/USD often recognized as having a negative correlation with the USD/CHF pair as the EUR/USD is often perceived as high risk and highly sought after during periods of rising risk appetite, while the CHF is a safe haven currency that is sought after in times of rising risk avoidance.

 

Trading EUR/USD with London Breakout Strategy

As the name suggests, the London Breakout strategy relies on the occurrence of a breakout at the beginning of the London session.  According to the division of forex trading sessions, the London session opens at 7:00 GMT and closes at 15:00 GMT.

To implement this trading technique for EUR/USD, you need to open a chart on the Hourly (H1) time frame and ensure that the chart is in candlestick format. Then, follow these step-by-step instructions:

  1. Determine the time settings on your trading platform. It would be easier if the time settings are based on GMT. However, if that's not possible, you can adjust it manually. In the London Breakout strategy, it is crucial to accurately identify the opening and closing times (15:00 GMT) of the London session.

  2. After the London session opens and prices start forming a new candle (> 7:00 GMT), mark the three previous candles (the last three candles of the Tokyo session). The markings can be in the form of two horizontal lines that represent the highest peak and lowest valley among those three candles. These two lines will serve as the Support and Resistance lines, as shown in the screenshot below:

    London Breakout Strategy for EUR/USD Trading

  3. Prepare Pending Orders. First, place a Buy Stop order around 5-10 pips above the Resistance line. Second, place a Sell Stop order around 5-10 pips below the Support line. The 5-10 pips distance is not fixed, so you can adjust it according to the trading volatility on that day.

  4. Leave both Stop Orders until one of them is triggered. Once one order is triggered, immediately cancel the remaining Stop Order. For example, in the screenshot above, it is evident that the Buy Stop order is triggered, so you need to cancel the Sell Stop order. Manual cancellation is not necessary if you use OCO (One Cancels the Other) Orders because the unexecuted position will be automatically canceled. However, unfortunately, not many brokers provide this feature, so you may have to rely on Pending Orders only.

  5. Take Profit and Stop Loss can be determined based on risk/reward ratio rules, your assessment of the market situation afterwards, or by applying Trailing Stop. Regardless of the method used, it is important to set Take Profit and Stop Loss no later than one hour before the closing of the London session.

Looking at forex trading statistics in this day and age, the US Dollar vs. Euro has become the most popular currency pair in the world based on its fantastic trading volume. As the most widely traded currency pair in the world, it's no wonder that most beginners learn to trade with EUR/USD. However, have you known about these EUR/USD facts?