EUR/USD, is the exchange rate between the Euro and the US Dollar, the currencies most traded in the Forex market. The US dollar represents 86.3% of all currency exchanges and is usually paired in different pairings with other world currencies.
In second place of the most traded currencies in Forex, we find the Euro, with 37%, in third place the Japanese Yen (JPY) with 17%. If we consider currency pairs instead of singles, the most traded pair is Eur/USD with a percentage of 28%, while in second place there is the Usd/Jpy pair with 14%, in third place Gbp/USD, the British pound (Gbp) and the American dollar.
There are specific terms in Forex that refer to important transactions, so it is important to know what they mean. The exchange rate is the ratio between two currencies, where the first currency is defined as "certain" and is placed on the numerator, while the second currency is defined as "uncertain" and is placed on the denominator.
The factors that particularly affect currency prices are due to the economic, financial and commercial conditions of each individual State, which have a particular impact on the valuation, strength and solidity of each individual currency.
For this reason, Forex traders, in order to understand the behavior of different exchange rates, focus on the development of: balance of payments, interest rates, inflation rate, money supply, budget and income of the state, the labor market, productivity.
Macroeconomic data are able to influence the behavior of the different currencies and therefore also exchange rates. Macroeconomic data refers to all economic activities in general, their performance, the real estate market and the labor market. Macroeconomic data analyze all confidence indicators that affect both consumers and businesses, inflation indicators, indicators that refer to central bank activity.
In international use, the purchase or sale order refers to the currency placed in the numerator. If an investor opens a long position on the EUR/USD currencies, he thinks that the euro is appreciated and the dollar depreciates. On the contrary, if the investor opens a short position, he thinks that the euro depreciates and that the dollar appreciates.
It should be considered that you do not work directly on one currency but on the exchange of one currency against another. The Eur/Usd ratio indicates how many units of USD are needed to buy or sell one of the EUR.
The US dollar is the base currency for most pairs except Eur/Usd, Gbp/Usd, Nzd/Usd and Aud/Usd. The euro, on the other hand, is the base currency for all the pairs with which it crosses, while the pound is the base currency for all the others except the euro.
Each currency has an interest rate that varies over time. If the trader's position on Forex is maintained for a period longer than two days of currency (spot market), interest will be collected on the currency purchased and paid on the currency sold.
Indicative prices are provided by the main operators to info-provider circuits such as Reuters, Bloomberg, Trader made. Operating prices are provided by market makers and brokers. Among the latter, the main ones operating in the Forex market are Ebs and Reuters Dealing 2000 and 3000.
Reuters was the undisputed leader in this market in the 1990s and in particular Reuters Dealing was the leading communication tool in the interbank market. Ebs (Electronic Brokerage System) was born later but has taken root in the operating rooms of the major banks worldwide, being a brokerage company specially built and participated by the major banks worldwide such as Goldman Sachs, UBS, Credit Suisse, Bank of America.
In the world of Forex, the Yen dollar pair and the related exchange rate are particularly important, also given the value they have in economic and political relations between the two countries of origin. This exchange rate varies due to interference by the two governments, especially the Japanese one, which has every interest in having a weaker currency than the American dollar, so as to be able to propose a lower cost of its products on the export market. A few years ago, the Central Bank of Japan intervened, when the yen was clearly higher than the dollar and it was necessary to bring the rate back to an exchange rate in the parameters. At the time we write the USD/JPY exchange rate is 110.33, which means that it takes 110.33 yen to buy a dollar.
Investing through currencies literally means trading them, that is to say predicting and hoping that the development of the financial markets will increase the value (exchange rate) of what has been bought compared to what has been sold. We always trade in currency pairs, in this specific case the base currency is the dollar (USD) while the yen (JPY) is the counter currency, also known in jargon as counter currency, while to define this pair we use the term "gopher". The transactions are made in the base currency, so in the case of USD/JPY you buy dollars and sell yen.
Buyers of a currency hope, as their value in the financial market increases, to be able to sell it at a higher price (long), while sellers wait to buy it back at a lower price (short). In the field of online trading this pair is the second most used and traded (the record goes to EUR/USD), in fact, about 20% of daily investments made in currencies see the dollar as the Yen protagonists, which are also positively affected by the US dollar/Swiss franc (USD/CHF) and US dollar/Canadian dollar (USD/CAD) pairs, since in all three currencies the US currency is indicated as the base currency.
For all traders who are preparing to trade in currency pairs, it is good to understand the politics and economy of the countries of reference. In the USD/JPY case, we should not forget some factors that often determine the performance of the yen in the markets. One of these is certainly the role played by the Central Bank of Japan, which intervenes both directly and indirectly in forex transactions. The Governor of the Japanese Bank holds a monthly conference in which he announces changes in interest rates and provides information on the country's economic policy, these will have repercussions on the market that will have to be anticipated and understood to avoid operations too risky. Other data to be monitored are prices of services and consumer goods in Tokyo, the ratio of imports to exports and finally
GDP. A GDP that is higher than expected is positive for the currency concerned, on the contrary if the currency is lower devalued.
Also, with regard to the US dollar, it is necessary to keep under control the sales and employment data, as well as any announcements on interest rates by the Federal Reserve.
Knowing how to interpret and analyze the forex chart on this currency pair will allow all traders to understand the right time to make the investment and get the most out of it. In addition to the factors relating to the politics and economy of the respective countries, there are also purely technical elements to be taken into account. Tokyo Square is open one in the morning and closes at nine o'clock (Italian time), while the American Square opens at two in the afternoon and closes at ten in the evening. These times have an impact on exchange rates and consequently on the forex chart: at the opening there are the greatest variations while towards evening the interest of investors decreases.
There are currency pairs that are more traded than others in the forex world, and are called in jargon "major", generally are those in which the dollar is associated with other equally strong currencies, such as the euro in the USD/EUR pair, the yen USD/JPY, the pound EUR/GBP, the Swiss franc USD/CHF or the Canadian dollar USD/CAD. Crosses are those where the US dollar is not present between the two currencies, while exotic pairs are those where the secondary currency is less known and traded. The largest currency pairs are those with the least volatility and on which most trades are made.
The general advice is to work on the more stable ones, especially when it comes to our first investments in this area.
Starting from the "major" type, these, as anticipated, are the most traded and safest pairs, precisely because they have less volatility and also because they are constantly monitored by market participants. It should be remembered that volatility is common in all pairs, but to varying degrees. Volatility is the variability of the exchange rate of a specific currency, since it must be kept under observation over the long term, because this can provide a precise indication of the convenience or otherwise of an investment in that currency. High volatility is reflected in an exchange rate that can fluctuate widely over time, both positively and negatively. However, when a currency has low volatility, this means that changes are small and constant.
The USD/EUR pair (US dollar/euro) is certainly the one that dominates forex operations because it is more traded and therefore with a low spread, given the fact that trades are made a few seconds apart. The Australian and American dollars AUD/USD and the US and Canadian dollar USD/CAD are affected by the price of two of the main commodities, namely oil and gold. When considering the GBP/JPY pair, you should be very careful, especially if you are still a newbie, because it has great volatility and allows for big gains but also a high risk of loss. As for exotic currencies, they have higher commissions and risks than the higher ones.
When we speak of correlation we refer to the oscillation of two currency pairs, which can be the same or opposite or random, taking into account that the exchanges take place on the pair and that therefore the movement affects both. If you decide to invest in two pairs instead of a single one, this is a factor to be known. When there is an identical and negative correlation the coefficient is indicated with - 1, in this case the two pairs move in the opposite direction in all cases, the coefficient + 1 is when they are positive and move in the same way, it is coefficient 0 when the two pairs never have correlation
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