How To Trade EURUSD Currency Pair? Know These Secrets!

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Europe is a predictable part of the world. France, Germany and Italy the largest members of the European Union (EU) usually have high budget deficit and tend to keep the interest rates more stable as compared to United States. One of the most heavily traded currency pair is the EURUSD. Now when trading EURUSD, you need to keep an eye on what is happening in both US and Europe.

FED tends to follow a more free market approach with frequent adjustment to the interest rates. The general policy of the FED is to make USD trend in one direction for a long period of time. Now, technical analysis when combined with fundamental analysis can be a great tool in the arsenal of a currency trader. Fundamentals can tell you the long term general direction of a particular currency.

Now, the most important thing that you need to keep in mind while trading Euro is that the European Central Bank (ECB) tends to take a strict policy against inflation. This has something to do with the period of hyperinflation experienced by Germany after the First World War that had devastated the German economy and the German working class. With history at the back of their minds, ECB raised interest rates more than it lowers it.

Now, another thing that you need to keep in mind is the politics and economic growth is interlinked. When US economy slows down and interest rates are lowered by the FED just like the present, money starts to flow abroad. In the past, it used to be Japan. But the market knows that the Japanese Central Bank (JCB) does not like a strong Yen (JPY). So it starts selling JPY to stabilize it. This means that the default currency when USD weakens is the Euro now.

On the flip side, when there are economic and political problems in Europe especially when the European economy is slowing down and the British economy is showing signs of strength, market often sells the Euro. Now fundamental analysis is going to tell you the long term behavior of a currency pair. When you trade daily, you only look at the charts. This is the one and only truth that matters for a currency trader, you only trade what the charts show you.