The Euro and the U.S. Dollar is one of the most popular trading pairs for binary options traders. It is, in fact, the most traded currency pair in traditional markets as well. This pair sports the highest trading volume compared to other currencies because it is the most predictable and free information is widely available on it.
The EUR/USD currency pair forms part of the particular category of currency pairs known as the ‘Major currency pairs’. These are basically the currency pairs which trade the most volume against the U.S dollar. Also, the euro and the dollar are the world’s two largest currencies and represent the world’s two largest economic and trading blocs. As such the very first factor which impacts the trends of the currency pair is the relative strength of the two economies, that is, a strengthening U.S. economy normally boosts the dollar against the euro and a growing European Union economy strengthens the euro against the dollar. This is something investors normally take into consideration while trading on the pair.
Things to consider
For beginners in the field, the EUR/USD makes an excellent pair given the combination of liquidity and volatility. This does not mean that risk management should be brushed aside. Markets get volatile unexpectedly, especially in light of unforeseen global events or simply following comments or data from influential bodies. As such, when trading EUR/USD, it is important to watch out for important economic releases in the U.S. and in Europe. For example, the U.S. NFP report plays a considerable role in determining future trends of the dollar and has the potential to bring it significantly down or send it higher. In Europe, the Consumer Price Index is a definite release to keep an eye on.
Other than that, interest rate decisions by the U.S. Federal Reserve Bank and the European Central Bank also have colossal significance. These decisions have a direct impact on the trends of the dollar and the euro. Other important considerations include GDP growth, inflation levels and unemployment rates.
When trading EUR/USD, three specific strategies are generally mostly effective.
- Buy Or Sell The Pullback
Trends in the EUR/USD rushes up and down and carries the price from one level to another in a positive feedback loop that can generate considerable momentum. However, this rapid movement can potentially end when the supply/demand equation shifts. The pullback strategy uses this counter trend movement to identify important support and resistance levels that should end the price swing and restore the initial trend direction. These levels often come at prior highs or lows.
- Buy The Breakout/Sell The Breakdown
As a currency pair, EUR/USD tends to go back and forth within confined boundaries over long periods of time. This creates well-defined trading ranges and trends. Traders with the knack to make the right trades at the right time during the consolidation phases of the currencies often benefit from low-risk trade entries. This happens when the support/resistance levels break, giving way to a strong rally or selloff. Impeccable timing is the key to success here.In general, it’s a good idea to reduce timing risk by opening a partial position when the pair breaks out or down and adding to it on the first minor retracement.
- Enter Narrow Range Patterns
EUR/USD also prints narrow range price bars that lower volatility and raise apathy levels. Coincidentally, this also gives a considerable entry signal for a breakout or breakdown. With this strategy, traders enter positions within the narrow range pattern, with a tight stop in place in case of a major reversal.
The above information, tips and trading strategies are very useful when trading EUR/USD. There are also other technical strategies that traders can use to optimally trade EUR/USD. Like any other investment, trading the currency pair carries a certain level of risk. Let your education,and not your emotions, guide your trading decisions.