Technical and fundamental analysis of the EUR/USD price

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If you are interested in the foreign exchange market and you have already studied the Forex, and its operation, a little then you certainly know that the rate of a currency pair such as the EUR/USD is often influenced by what is called the currencies interest rates. These rates, fixed by the central banks are actually studied by traders before they take positions. Here therefore is some advice for analysing the price of the EUR/USD currency pair according to these rates.  

Latest news

EUR/USD rebounds after Europe Agreement

22/07/2020 - 14h48

Following the European agreements finally reached to help the EU economy recover from the unprecedented Covid-19 crisis, the EUR/USD cross is experiencing a very strong bullish trend.

Elements that can influence the price of this asset:

Analysis N°1

The EUR/USD exchange rate is influenced by various factors, including the economic health of the Eurozone and the United States. All economic and financial data from these areas will therefore be of interest to consider.

Analysis N°2

Of course, data from the two major central banks of these currencies, including the European Central Bank or ECB and the US Federal Reserve or Fed, will also be closely monitored, particularly with regard to interest rate announcements or monetary policies in general.

Analysis N°3

The euro and dollar currencies are also directly influenced by the most impactful geo-political events and you will therefore need to keep an eye on the news to keep yourself informed of the most interesting publications.

Analysis N°4

The political and economic relations between the United States and European countries will also be monitored with the greatest interest, as conflicts or other trade agreements can influence the exchange rate of this currency pair.

Analysis N°5

Finally, and given the highly speculative nature of the foreign exchange market, a complete technical analysis of this currency pair will also be carried out systematically, monitoring the best performing trend and volatility indicators.

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The history of the EUR/USD

Before January 2000, and therefore before the introduction of the Euro, the EUR/USD pair was valued at 1.18. That means one Euro was estimated at a value of 1.18 Dollars. 

Following the implementation of the single currency, a fall was first experienced with a historical low reached in May 2000, placing the Euro at below 0.83 Dollars. 

However, since this moment, the Euro did not cease to increase against the greenback until the 2008 crisis. From November of that year, the EUR/USD lost almost 23% before gradually recovering the lost points. 

Although the Dollar is generally recognised by the experts and the traders as a safe refuge value, the Euro does not systematically suffer from this since economic and political current events are mainly in its favour. 

Currently, in spite of a difficult situation regarding the debt of certain Euro zone countries, the single currency benefits from a recovery policy of the rates on behalf of the ECB, making it an asset that is closely followed by investors.


Which entities fix the rates for the EUR/USD?

It is in fact the central banks that fix and update the currencies interest rates. For the Euro, it is the CEB, or Central European Bank, that is responsible for the rates, whereas for the American Dollar it is the FED or Federal Reserve that is responsible.

These interest rates are published in the weekly economic calendar.


Why the rates influence the price of the EUR/USD:

The interest rates of a currency represent a potential supplementary profit for a trader that possesses this currency with the aim of reselling it. Therefore, the higher the rate of a currency, the more this currency has the possibility of attracting the attention of investors who see it as an opportunity for higher profits.

It is therefore essential to follow the publication of these interest rates and their movements over time for analysing the rates of the EUR/USD currency pair to know in which direction it is best to trade, this means the direction the trend is expected to take.


How to trade EUR/USD?

To efficiently trade the currency pair Euro/Dollar, we recommend you follow these practical suggestions:

Firstly, the indicators to follow are numerous. In fact, to follow the movements of the greenback it is necessary only to monitor the United States economic and political current events, whereas for the Euro, the indicators emanate from all 16 Euro zone countries. However, it should be noted that the indices related to the United States generally have more impact on the EUR/USD rate. 

To efficiently trade this currency pair and make real profits, the investors therefore need to follow the current events closely. That certainly takes time, but the profits at the end are very attractive. On strategy-stocks, you will find regular analyses of these current events to help you together with forecasts on upcoming events that will influence the values.

One of the most influential factors regarding the Euro/Dollar pair is of course the interest rate, also called “directing rate” of each of the two currencies. To learn about the changes and the Euro monetary policy, you should follow the official announcements from the ECB, or European Central Bank. With regard to the Dollar, the organisation in charge of these regulations is the FDE or Federal Reserve System.

By using these indicators, it becomes fairly easy to forecast the short, medium and long term movements of this currency pair. So trading the EUR/USD can prove to be very profitable for both professionals and individual investors.


How to carry out a good fundamental analysis about the course of the EUR/USD?

In order to take a good position on the course of the EUR/USD, you should of course use a good technical analysis and a high quality fundamental analysis. Concerning the fundamental analysis, we invite you to find out some tips that will be very useful for you in this article.

In fact, the currency pair EUR/USD is one of the most popular currency exchange rates among the numerous pair of currencies in Forex. This is due to the fact that this pair connects the two largest economies in the world which are the economy of the Euro zone and that of the United States. Much more than a simple indicator of the exchange rate of one currency against another, the pair EUR/ USD is also an excellent indicator of the economic health of these two geographical zones. However, the opposite is also true, the value of the EUR/USD also has a significant impact on the development of these two zones.

It should be understood that the main investors to speculate in the foreign exchange market and therefore on the price of the EUR/USD are the companies that use the purchase of foreign currencies at the best possible exchange rate in order to finance their international transactions. For example, European companies that have to buy products in the US will therefore buy dollars when the price is interesting in order to reduce their costs. This also works the other way when these companies sell these currencies, always on Forex, in order to recover the profit of their subsidiaries based abroad or the payments made by international clients. To be sure of taking advantage from the most attractive exchange rate and thus save money or make important profits, these large companies use the services of intermediary financial specialist who are often banks and carry out these transactions in their place on Forex. In order to do this, these intermediaries hire analysts specialized on exchange market, who are able to anticipate the best exchange rate between the currencies. They can thus advise their clients and reduce the level of dematerialized risk that these kinds of transactions could pose. It is obvious that as an individual investor, you could have the same analytical capacity as a bank from the moment you know the fundamental factors that affect the most the EUR/USD and here are the most important ones.

First of all, you should of course keep an eye on the geopolitical conditions that affect these two currencies the euro and the dollar. We know that when the situation between the United States and the Euro Zone or somewhere else in the world is tense or unstable, it is often the euro that pays for it. Which was the case recently during the crisis that affected Ukraine which led to a fall of the Ruble, the Russian currency, but also a fall of the Euro against the US dollar.

The second element to take into account during your fundamental analysis about the course of the EUR/USD is the monetary policy taken by the major central banks. Let’s remember that it is the ECB (The European central bank) for the euro and the Fed (Federal reserve) for the dollar. In fact, those large central banks have the power of putting in place specific monetary policies in order to boost the economic growth of their country or of a group of countries or to cope with an economic crisis. For that, they count with a great weapon: interest rates.

A decrease in the interest rates will result in simpler borrowing conditions, which will obviously lead to a decrease in the price of the currency concerned. If you are not very interested in the history of the EUR/USD, you should recall the effect of the quantitative easing program launched by Ben Bernanke and the Fed which led to an increase in the price of the Euro against the dollar, the pair reached 15000 points or a point of extreme weakness of the US dollar. In 2015, we also witnessed the opposite phenomenon when Mario Draghi, who was then the president of the European central Bank announced a wave of obligatory acquisitions which costed several tens billion euros per month and led to a fall of the Euro, the pair EUR/USD fell then to the level 1000 in an almost perfect parity between the two currencies.

Because of these geopolitical effects on the price of the EUR/USD, you can easily anticipate the future changes of this pair by studying the reports of financial analysts or by basing yourself on the consensus of the latter. You will of course find all this information in a brokers site.


How to carry out a good technical analysis about the price of the EUR/USD?

Now that you know how to carry out a coherent fundamental analysis about the price of the EUR/USD, you should of course learn how to carry out a good technical analysis. In fact, even if the geopolitical and economic context has a lot of influence on this pair of currencies, the opposite phenomenon is also a fact. Thus, a weak currency will directly favorize exports from one country towards another, and decrease importations and internal consumption. A strong currency will have the effect of increasing the purchasing power in the country and imports while exportation will be less competitive and interesting. However, it is not necessary to go into detail about this kind of market analysis to be able to anticipate changes in the EUR/USD since the stock charts will help you see more clearly the possibilities.

In order to use the technical analysis of the price of the EUR/USD correctly, first of all it is advisable to learn how to detect the trends already started with movements of purchase or sale. For this, you should take care of choosing well your analysis objective which could be in the short term for orders of some minutes or in the long term since you could analyze these trends over the period of several years.

The more technical indicators you use simultaneously, the more likely you are to make good previsions concerning the future movements of the EUR/USD. This pair of currencies have very high volatility, the possibilities of investment are numerous but also risky. This is the reason why you should in any case compare the results obtained with your technical analysis and the signals from your fundamental analysis.


What is the strategy that you should adopt to trade EUR/USD?

Now that you are familiar with the best techniques of analysis to use for the EUR/USD, you must be wondering probably what strategy you should use in order to trade this pair of currencies. In other words, you want to know the advantages of trading on the long term and on the short term in this pair of currencies.

First of all, let us recall that the pair of currencies EUR/USD is highly volatile, which could be interesting for the most experienced traders, but which could also represent a relatively high level of risk. And this is especially true for short term strategies. Professional institutions such as hedge funds which speculate on the price of the EUR/USD do so often on the long term and therefore using at least weekly or daily graphs. This technique allows them to avoid the negative effects of its volatility which could complicate things when trading in the short and medium term. Trading on the long term should therefore be favorized if you want to reduce the level of risk and take advantage of the normally well-defined background trends that this pair of currencies offer. The advantage of this kind of trading is that it is based mainly on the technical analysis even if you still have to keep an eye on the economic news that could influence this pair of currencies. However, this strategy has the disadvantage of demanding a large investment capital with stop orders very far from the starting price in order to avoid a closing of your positions following micromovements.

Concerning trading on the short term, it is also possible, but in this case, you shouldn’t rely on the background trends but on the micromovements. In order to do that, you shouldn’t hesitate to close your positions quickly without necessarily waiting to reach your basic objective, in order to protect yourself from the micromovements of the market and from the very high volatility that could make you lose money at any moment. Base yourself mainly on pivot points or on technical supports and resistances that are usually good points of entry on the market. The statements of the central banks can also be interesting as a starting point for taking a position especially if your graphs are leading you in the same direction. The scalping strategy is also an investment method on the price of the EUR/USD.

Frequently Asked Questions

How to invest on EUR/USD parity?

There are two distinct ways to invest in the EUR/USD currency pair. The first is CFDs or contracts for the difference, which means betting on the upward or downward movement of this value on the spot market. The second solution is to use a stock exchange product which is a derivative such as a warrant or a turbo and which allows to use a leverage effect with a maturity, an exercise price and a deactivating barrier.

When was the first quotation of the EUR/USD?

The EUR/USD exchange rate was realized for the first time on 1 January 1999. This first quotation followed the creation of the single European currency for the euro area after the Maastricht Treaty. At this event, the first quotation of this currency pair was set at 1.1722 pips, which is equivalent to 1.1722 dollars for one euro.

Why invest on the EUR/USD rate?

The EUR/USD cross is currently one of the major currencies in the foreign exchange market. Indeed, it represents two of the world's largest economies, i.e. the Eurozone and the United States. It should also be noted that the EUR/USD is currently still the currency pair with the highest liquidity, which of course makes it more interesting for Forex trading.

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