EUR/USD trading - How to trade Euro vs Dollars

Last updated: 28.02.2023
Frans de Klerk
Frans de Klerk
CFD & Trading
12 years

The forex market refers to the market where currencies are bought and sold, or speculated upon. It comprises the largest financial market across the globe and is highly-liquid. The forex market is made up of forex pairs – one of which is the EUR/USD.

This forex pair is the most traded forex pair and represents an extremely lucrative opportunity for forex traders. With tight spreads, it’s possible to take advantage of a range of competitive options when using an online forex broker.

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  • Taking a look at the forex pair EUR/USD
  • History of the EUR/USD
  • Drivers of price change for EUR/USD
  • Best strategy to trade EUR/USD
  • Find the right forex broker
  • FAQs

Taking a look at the forex pair EUR/USD

Currencies are always traded in ‘pairs’ and the inherent value of one currency is always relative to the second currency within that pair. As such, it’s always important to assess how the EUR/USD pair affects one another. Without the fundamental understanding of how currencies are affected – by way of different internal and external factors – it becomes rather difficult when you engage in trading this forex pair. As such, we’ve provided you with a detailed guide that will outline how to trade EUR/USD and what you should look out for as an online trader. With the correct knowledge, you’ll find that it’s a lot easier assessing the market for trading EUR/USD.

The EUR/USD forex pair is the most liquid in the world and is traded on an enormous scale across the world. Trading EUR/USD over-the-counter continues to experience high activity on a daily basis. The US dollar has long been the most traded currency while the euro comes in a close second. Much of this is down to the fact that the US dollar and euro come from the two biggest economies – in the western world anyway. All of which means that this forex pair accounts for more than half the total trading volume throughout the forex market.

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History of the EUR/USD

Before we assess the trading strategies at play in order to trade EUR/USD, it’s important that we understand the historical perspective of the two currencies and how they came to be two major players in the forex market. 

The advent of the euro only came into full effect at the end of the 20th century. With the realisation of the European Union, the euro gained immense traction. It is now a market leader and is traded in all forms, throughout the continent and broader global landscape. However, the euro rating as a reliable currency has come under scrutiny for brief periods of time. It hasn’t always inspired confidence amongst investors. But, in recent times, the euro has managed to once again gain a strong foothold. 

The dollar has been rooted in history for close to 250 years and has always been deemed as a reliable and constant source of value. The dollar continues to be a global standard to traders and investors. As such, the EUR/USD pairing sparks interest amongst novice traders and experienced traders alike. For those starting off their online trading venture, take a look at the latest forex trading for beginners guide.

Drivers of price change for EUR/USD

There are key factors that need to be taken into account when trading EUR/USD. These drivers will determine the price movements of each currency and enable you to better assess what kind of price predictions should be taken into account. Without understanding these determinants, some of which may seem complex at first, trading EUR/USD becomes more like taking a shot in the dark. 

Much like our overview on how to  trade GBP/USD and trade USD/JPY, we urge you to closely consider the drivers of change and make sure that you regularly stay up-to-date with possible developments regarding each. The following factors include key areas of concern when it comes to the actual trading.

Trading sessions 

First off, it’s best to know which sessions are best to trade EUR/USD. When it comes to different trading sessions across the globe, there may be sessions where trading activity is far more slight. This can be the case during an Asian trading session where relevant economic data hasn’t been released. You’ll find that important data and respective events will usually be released in the US and European trading sessions. 

If you happen to use our trading platform to trade EUR/USD, you’ll find that your trading session will coincide with the latter session. This means that you will have access to the latest economic data and events – allowing you to make informed decisions as to what might happen with the EUR/USD pair. It’s imperative that you consider the latest developments as these will play a big role in price movements of the currency. 

Interest rates 

Another major determinant comes down to interest rates in the respective countries from where the currency originates from. As is the case with the latest economic theories, interest rates and exchange rates are correlated to a strong degree. When interest rates are increased or decreased, it has been noted that exchange rates also change. If the US increases interest rates relative to European interest rates, it becomes apparent that the US dollar increases relative to the euro. If the Eurozone embarks on increasing interest rates across the board, the converse is true; the dollar weakens relative to the euro. It’s an important factor to take into consideration as you trade EUR/USD.

Economic reports 

Each and every week, there are a range of reports that offer a massive collection of data. Two main institutions who release data are the Federal Reserve Bank and the European Central Bank. These two institutions regulate anything from interest rates to monetary policy. These reports include a lot of data that may affect the price and economic stability of each currency. More information that is pertinent to trading EUR/USD consists of the latest GDP figures as well as consumer price index. All of which will provide insights into what the relevant currency might head in the coming days, weeks, or months.

Best strategy to trade EUR/USD

Now that you have a better understanding of what factors affect the price movements of the EUR/USD, it’s important to find a trading strategy that will put your newfound knowledge into practice. It’s important to tailor a strategy that will help you trade EUR/USD.

It’s always important to keep your eye on breakout points that will allow you to capitalise on good support and resistance trends. Trading conditions that you should take into account for a price action strategy are outlined below. This strategy will allow you to trade on actual price movements as well as past movements involving the US dollar and the euro.

Trade long

Long trade entry: It’s important to remain patient and assess when two consecutive lows come into play. As two consecutive lows come into existence, it’s the third bounce in the price that you should act on. Once the third bounce occurs, opening a long position is recommended.

Putting into effect a long trade stop loss: When considering three lows, it’s important to place the stop loss order right at the bottom of the lowest low.

Exits and ultimate targets: It’s important to have the goal to target the resistance level that is next. The higher resistance point might signal that a bullish run is tapering off. Although not always the case, it may well be. It’s a good way of securing profits after the first sign that an upward trend in the price movement is less secure.

Trade short

Short trade entry: Opening a short on the EUR/USD should come at a stage where you find a ‘bearish’ turn after two consecutive highs. At this point, you open a short position. Keep track of the price movements and time your trade.

Short stop loss: It’s pertinent that you apply a short stop loss at the point where the highest high has reached – or more correctly, just above that point.

Exits and ultimate targets: Be sure to target the next support to the downside. Assess the support size and ensure that it’s the same size. If the pattern chart you are using is based on a 1-hour chart, the same must be true for your target.

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Find the right forex broker

Now that you have a better idea of all the different factors that make up trading EUR/USD and where to find the right broker, it’s time to start your forex trading journey. The best forex broker will be a broker that provides you with easy access to forex markets – enabling you trade with freedom. It’s important to consider the underlying fees, trading platform, and choice of forex pairs. If you are only looking to trade EUR/USD, then you shouldn’t have a problem as all online brokers will provide you with the opportunity to trade this pair. 

Our recommendation of the best online broker when it comes to trading EUR/USD is nextmarkets. Our latest platform, combined with a seamless mobile trading app, will allow you to trade forex CFDs in a timely and effective manner. We provide you with a responsive platform that will also equip you with a range of trading tools. All of which will culminate in an overall online trading experience that enables you to be adaptable and versatile to changes in the forex market. 

Our final thoughts

Keep in mind the different aspects that will affect the price of either (or both) currency. These include the latest economic and political activity from either the US or the EU. The state of play in each presiding country will weigh-heavily on the price of the currency and affect your trading outlook. If the Federal Reserve mandates that a fall in interest rates is on the horizon, keep in mind how this will drive down the price of the euro relative to the dollar. Similarly, if economic instability throughout part of the EU is prevalent, investor confidence and demand in the euro will fall, driving down the price of the euro relative to the dollar.

Once you have picked a trading strategy, you’ll be ready to take on the forex market and trade with the most liquid forex pair. Be sure to adapt your strategy when necessary. If you’re looking to find out more about forex scalping and improve your trading skills.

EUR USD trading FAQs

👍What is the best strategy to trade EUR/USD?

There are a number of strategies that you can use when it comes to trading EUR/USD. However, it’s important to understand the intricacies and factors that affect the price of EUR/USD before you apply a strategy. This will enable you to assess the best way in which you can trade the currency pair. In our latest guide, we’ll take you through all you need to know in order to trade the forex pair with maximum confidence. Find out about the fibonacci trading strategy or price action strategy for a greater perspective of online trading strategies.

🔮Is it profitable trading EUR/USD?

The EUR/USD forex pair is the most liquid forex pair in the world. This means that there are tight spreads and sharp price movements. All of which makes for great trading opportunities. However, before it becomes profitable, it’s important to apply a good trading strategy and use a top forex broker. We recommend that you visit our platform to find out more about trading EUR/USD and how best to approach your trades.

📍Which platform is best to trade EUR/USD?

There are a number of trading platforms that enable you to trade EUR/USD across Europe and the UK. However, not all of these platforms will allow you full flexibility and the necessary analytical tools needed to take advantage of the market. As such, we recommend that you visit nextmarkets to find a platform that will enable you to do all of the above, and more. We’re committed to providing you with a high-end forex trading experience.

📲How do I create an account to start trading EUR/USD?

In order to trade EUR/USD, it is necessary that you open a trading account. Opening a trading account is straightforward as long as you use a reliable broker. Our latest guide to trading forex will provide you with a fantastic starting point where you can begin to trade EUR/USD. As such, we recommend that you take the time to find out more about how to trade EUR/USD and capitalise accordingly.

🔍What are spreads for trading EUR/USD?

The spreads for trading EUR/USD are the tightest you’ll find with forex pairs. Finding the best spreads for EUR/USD also depends on the forex broker in question. It’s important to find a forex broker that offers competitive spreads across the board. This will ensure that you are able to make the most of your trades. Visit our latest guide to find out where you can benefit from tight spreads when trading EUR/USD. We’ll also walk you through the process of how to trade EUR/USD.

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