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The currency pair is classified as major a+since it is the most traded currency pair in the world and they are very close in value. The difference in value, i.e. the strength of the currencies depend on the economic status of the states they represent, coming down to the Eurozone and the US economy.
The EURUSD is the most traded and most liquid pair since this currency pair is being sold and bought numerous times on a daily basis. It goes over the trading table as the best know currency pair. The special feature which draws so many traders to the EURUSD is the small spread. Namely, these currencies are close in value and they do not account for major losses when it comes to individual trades. Since binary options are close to Forex trading, this pair is one of the highlights in the options market as well.
Before you enter a binary options trade on this currency pair you might want to know the following:
- The greatest market activity of this pair takes place during North American and European sessions and you should trade only during USA and European sessions to avoid a standstill of the currencies;
- The Asian market activity time is also not to be neglected for trading ranges with a special target on One Touch options given the consolidation of EURUSD in Asia;
- EURUSD trading is highly popular since it involves the two biggest global economies the USA and Eurozone which reflect on minor economies as well.
Follow The News of the European Market
To stay in the loop, it is very important to follow the economic news related to this currency pair since it contains a lot of useful information regarding price movements of the two currencies. As a committed trader, you should take a look at the European Consumer Price Index (CPI) since it reveals the inflation status which is one of the key factors for the European Central Bank when drafting its monetary policy.
The European Purchasing Manager Index (PMI) represents also an important source of economic information given that it examines individual sectors and if they are growing or declining which is yet another hint as the European Central Bank uses the data and classifies them as dovish or hawkish/bullish or bearish.
Traders also look at the EU GDP (Gross Domestic Product) and the course of the unemployment rate in the EU when they trade the EURUSD currency pair. Follow the press conferences of the sessions of the ECB (European Central Bank) whereby the ECB President answers interesting questions on the market, an event which causes fluctuations in the market since the EURUSD trade frequency is particularly volatile during these events.
All of the economic news and releases give useful information to traders and can help them acquire more knowledge related to the economic movement, but they do not represent an instant success ticket, but rather give hints to traders of what is going happen at the next meeting and what decisions will be taken. A trader’s job is to interpret the information and link them to the EURUSD price movements, e.g. if inflation is greater than predicted by the ECB, you can prepare yourself for rates being cut.
Follow The News on the US Market
Since the USA is the biggest economy, closely followed by the Eurozone, economic news is being released regularly on a monthly basis and the news which one should take to heart as a trader are discussed below.
The Federal Reserve or the US Central Bank has a dual role and its decisions can be guessed from employment data and inflation or CPI. As a trader, make sure to take into account releases relating to these two factors, but some other sources will also be to your benefit. For example, the Institute for Supply Management (ISM), Retail Sales, Manufacturing and Non-Manufacturing, GDP, Private payrolls (ADP)Producer Price Index (PPI), etc.
Studying the different information from all of the listed sources can help you gain a better understanding of the market.
The Goal of Following Economic News
Well, of you follow the big economic releases, you will notice that the markets show the most intense volatility during those periods. Technical factors are the trigger for market movements but the reason for movement is news release which has been already proven in the past.
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In order to give you a full picture let’s imagine that news on the unemployment rate in the Eurozone is being announced during the London market session and the rate is higher than initially predicted. Such an information will automatically lower the value of the EURUSD pair since everyone will be looking to get rid of the depreciating Euro since they know that the ECB will be looking to modify the monetary policy in order to make up for the bigger unemployment rate. But, if during US news release it turns out that the US GDP is not indicating growth but rather a recession, it will completely out-balance or undo the Eurozone unemployment crisis and the EURUSD will automatically start to climb in value in the market.
Representing the world’s two largest economies, it is perhaps little surprise to learn the EUR/USD is the most popular traded currency pair in the world. But whilst rich volatility and volume attract day traders from all over the world, generating substantial profits is no straightforward feat. This page will break down the history of the EUR/USD, why to trade it and how to trade it in 2020, including online charts, signals, strategy, exchanges, news and more.
EUR/USD Trading Brokers
Why Day Trade EUR/USD?
As the most popular of the major pairs, the EUR/USD trade vehicle is often highlighted on trading platforms and exchanges. But why do so many day traders opt to pursue profits from this pair?
- Prevalence – They are the two most popular reserve currencies. Their size leads to an abundance of financial data on the pairing being released. This also makes them relatively straightforward to follow.
- Liquidity – The EUR/USD promises consistent liquidity, plus low bid-ask spreads.
- Volume – The huge numbers of active traders and market speculation ensure relatively high levels of volatility. All of which can lead to greater profit potential.
- Availability of resources – In some ways, short and long-term forecasts are now easier to make. You have access to historical graphs, candlestick and monthly charts, plus customisable indicators. Conducting Elliott wave analysis is more straightforward, for example. In addition, you have online active trading communities. These are often full of weekly forecasts and predictions for today.
So, with historical data downloads just a few clicks away and spreads plastered across the internet, intraday traders have plenty of access to the necessary information.
Despite a number of benefits to trading the EUR/USD pair, there also exist certain drawbacks:
- Volatility – The high levels of volatility within the EUR/USD pair can result in winning positions swiftly turning into losing ones. Often, no amount of historical data and 20-year charts can prepare you for the speed at which prices can swing.
- Leverage -Admittedly, trading on margin may increase your potential profit. However, it can also amplify losses. So, if you do utilise leverage, making accurate daily and next week forecasts is essential.
- Automated competition – Unfortunately, even with attractive forward and live quotes, competition is now fierce. You are trading against an increasing number of trading algorithms. You have to manually analyse and react to a bullish market with your interactive chart. However, bots will automatically enter and exit positions once certain criteria have been met.
Influences on Movement
Another crucial factor is the political landscape. Instability, as seen in the Brexit referendum, can all influence the direction of the currencies. Yet it isn’t just major elections that play a part, events such as Switzerland’s decoupling from the euro peg will also hit exchange rates.
The challenge comes in keeping an eye on the numerous countries within the eurozone. So, keep abreast of the latest political and economic news.
Combine recent events with EUR/USD historical data on a simple Excel. This will allow you to make more accurate forecasts for 2020 and beyond.
You will find your EUR/USD live analysis makes far more sense if you have a thorough understanding of what influences direction.
The biggest factor is the strength and outlook of the two economies. Put simply, if the European economy grows faster than the US economy, the euro will strengthen against the dollar, and vice versa.
A telling gauge of economic strength is interest rates. For example, the dollar normally strengthens when US interest rates are higher than those of big players in European economies.
As touched upon above, there is also a correlation between monetary policy implemented by the respective central bank and the EUR/USD relationship. This was seen in the 2007 global financial crisis, which was one of the greatest reductions in the euro vs USD history.
During this period, there was an unusual separation between the policy from the US Federal Reserve (Fed) and the ECB in particular.
The Fed looked to aggressively stimulate the US economy early on, with QE measures. The ECB, however, delayed QE measures. The US were purchasing sovereign bonds as a stimulus measure for years before the ECB followed suit.
The two also had somewhat different priorities. Whilst the Fed aimed to increase employment as well as stabilise prices, the ECB was mainly concerned with price stability.
The effect was most forex news stories focusing on the actions of the Fed, whilst the ECB took a back seat. Throw in that many member states were struggling with crippling debt and people soon began to question the longevity and efficacy of a universal monetary policy.
Unsurprisingly, this all led to strange fluctuations between the EUR/USD. Today, therefore, many that are investing focus on projections and expectations of central bank policy to help them form strategies around the EUR/USD.
Whilst you may focus your trading efforts on the EUR/USD, there are certain correlations with other currencies to be aware of. You will notice that some currencies feature in numerous currency pairings. This is because all currencies are interlinked. None of them trade entirely independently of each other.
Their relationships are known as positive and negative correlations.
- Positive correlation – This is when pairs react in line with each other. The three most popular pairs, GBP/USD, AUD/USD, and EUR/USD, are all positively correlated. This is a result of USD being the counter currency. So, any change in the US dollar will impact all the pairs.
- Negative correlation – This is when currency pairs react in the opposite direction. Popular pairs include USD/CHF, USD/JPY, and USD/CAD. For those unsure which is the base currency, it is the US dollar. This means they move in the opposite direction of the previously mentioned majors where the US dollar plays the counter.
A EUR/USD trader can use this knowledge to better understand the implications of movement in certain pairs. Let’s take the British Pound vs the US dollar, for example. When trading this pair, to an extent, you are also trading the Euro vs the British pound.
Unfortunately, it isn’t quite that straightforward. Economic factors and market speculation can result in shifts in currency correlations. A negative correlation may turn positive and vice versa.
EUR/USD Day Trading Strategy
An effective EUR/USD strategy is more than understanding how you can use pip values and calculators to your advantage. It’s also more than getting a feel for premarket sentiment. It’s about using your investing chart in realtime to consider tick data and weigh up your options.
Once you have a solid grasp of how EUR/USD market forces interact, you will need to turn your attention to a strategy. 5-minute, 30-minute, weekly, and all-time charts may prove useful, but knowing when to trade is just as important.
Part of the attraction of forex day trading is that you can buy and sell 24-hours a day. Whilst this is true, it doesn’t mean you should. Instead, you want to trade when the EUR/USD pair is active, with plenty of volume and volatility.
For example, when London and Europe are open for business, pairs that feature the British Pound and euro are more actively traded. If you’re day trading with EUR/USD, volume charts show the most active period is when both London and New York are open. These markets are open between 08:00 and 22:00 GMT.
The danger is, if you trade at the wrong times, the cost of spreads and commissions can cancel out your profits. So, many suggest only trading within a three to four-hour window.
So, when is the best time to day trade EUR/USD binary options, futures and other instruments?
The ideal time is from 13:00 to 16:00 GMT. This three-hour window is when London and New York are both open. Volume from both markets means spreads are normally tightest during this window.
This is also when forex forums come alive and you’ll see the biggest daily moves. All of these factors can result in the greatest profit potential. So, whilst it may be tempting to respond to every buy sell signal you see today, resistance may prove sensible.
Try not to let graph and market noise pressure you into trading on 12-hour intraday forecasts. Focus on what you know and ensure volume validates any potential moves.
Buying & Selling the Breakout/Breakdown
EUR/USD live charts and technical analysis will be needed to succeed with this strategy. You will find the pair swing back and forward within boundaries for considerable periods. This creates clear trading ranges, which should lead to new trends, higher or lower.
Bide your time during the consolidation phases. The reward could be low-risk trade entries when you spot that resistance and support levels ultimately break, leading to a rally or sell-off.
This technique relies on timing. Enter your position too early and you may find the range holds and a reversal is triggered. Go in too late and your risk increases as the position may execute above new support or below new resistance.
Narrow Range Patterns
You will frequently see the pair climb or drop into a substantial barrier and then fall dormant, creating narrow price range bars, leading to minimal volatility. This also results in powerful entry signals for breakouts and breakdowns though.
So, enter your position within the narrow range pattern, placing a tight stop to prevent losses from a major reversal.
The benefits of this method are that the straightforward pattern often predicts price bars will increase in significant breakouts and breakdowns. In addition, it’s low risk as you can place stop-losses close to the entry price.
When it comes to day trading Eur/USD, different strategies work for different people. Some prefer using pivot points, swap points, and forward curves, others will focus on trading around news announcements. Whether you opt for chart investing or not though, be patient, perfecting a strategy takes time.
Wind back the clock twenty years, before the mini futures and binary options of today, and the forex markets were a different place. It was the German Deutschmark vs US dollar, plus the French franc vs US dollar that dominated the scene.
However, January 1st 1999 set the wheels in the motion for foreign exchange history. But the road to the euro had been paved decades before that.
There existed two earlier versions of the euro, both were internal accounting units for European Community (EC) members. They were:
- European unit of account
- European currency unit (ECU)
Neither were ‘real’ currencies. They were groups of specific EC currencies, engineered to help stabilise European exchange rates. Together, they helped form the single currency we all know today.
The ECU section of currencies had a somewhat alternative makeup to those that were to form the euro. But the ECU still played a key part in the historical exchange rate of the euro. The value of one euro was set as the value of one ECU, when it was first created on January 1st, 1999. So, the initial EUR/USD exchange rate was 1.1686.
Despite this, the euro wasn’t to become a physical currency until 2002. However, the 1999 launch brought all the eurozone currencies together, including:
- German Deutschmark
- French franc
- Spanish peseta
- Italian lira
It was at this point, they stopped having separate, floating historical foreign exchange rates. They were bundled together until they were engulfed into the currency of today.
EUR/USD history data and opinion of the time showed many had expectations the euro would steal the dollar’s unofficial title as the global reserve currency. However, this is a mountain it is yet to climb.
Those that monitor the EUR/USD today are better able to forecast price movements, by taking into account previous events. Some of the most important of which, are as follows:
- 18th September 2007 – The Federal Reserve System cut fed fund rates by 50 basis points. As a result, this saw the euro strengthen against the dollar.
- 16th December 2008 – Federal Reserve System cuts rates to nearly zero. Again, this saw the euro strength against the dollar.
- 19th October 2009 – The new Greek government amends latest deficit forecasts from 6.7% of GDP to 12.7%. This had the effect of weakening the Euro against the dollar.
- 1st June 2020 – Moody downgraded Greek debt by seven notches to junk status This further saw the euro weaken against the dollar.
- 18th December 2020 – Federal Reserve System states ‘tapering’ of stimulus will commence in January 2020. Euro continues to weaken against the dollar into February of 2020.
- 14th July 2020 – The president of European Central Bank (ECB), Mario Draghi, prepares the market for quantitive easing (QE). As a result, the euro weakens against the dollar.
- 22nd January 2020 – The ECB introduces full-blown QE. This causes the Euro to weaken against the dollar.
EUR/USD exchange rate history and data demonstrate the effect of central bank action on price. So, perhaps those that analyse the Federal Reserve System will be more able to accurately predict fluctuations in the world’s most popular currency pairing.
On top of the factors highlighted in the timeline above, wars, elections and output levels have all influenced the EUR/USD in the past too.
There are also a number of other events that have triggered substantial EUR/USD volatility. The biggest of which include:
- Dot-com bubble – 1997-2001 saw speculation that rocked the EUR/USD relationship. It took years for the dust to settle and stability to arrive.
- Real estate bubble – The bubble was thought to be a key driver of the 2007-2009 recession that was hugely damaging to the US economy.
- European debt crisis – The impact of the European Debt crisis is still being felt today, and has had a significant impact on the relationship between the two currencies.
It is worth highlighting, those with an understanding of the past, are often in a better position to predict future price shifts.
Role of the US dollar
The EUR/USD related index you look at today will have been shaped to some extent by the unique role the US dollar has played over the years. These are just a few of the reasons it has grown to become the world’s most important currency:
- Considered the world’s reserve currency, it is used to settle the majority of international transactions.
- Many small countries will peg their currency’s value to that of the US dollar, whilst global banks will hold a large portion of currency reserves in US dollar.
- You will also notice the live price of gold and other commodities is often set in US dollars.
- The Organization of Petroleum Exporting Countries (OPEC) also conduct transactions in US dollars.
- It is the most featured currency in popular pairs, so as an aspiring forex trader, you need a solid understanding of what drives the US economy to predict where the US dollar will go.
Role of the Euro
The European Union is the biggest economic region. Its nominal GDP in 2020 is around $18.3 trillion. What some don’t realise when they look at their EUR/USD live chart, is that the euro’s growth is predominantly driven by services and manufacturing. As such, when economic activity slows in the EU, the euro usually weakens.
The euro is unique because 19 of the 28 European countries within the EU use it. Around 400 million people buy and sell with euros every single day. As the euro’s popularity has grown, so have the implications of economic and political events in the EU. So, whilst many traders focus on the catalysts behind the US dollar, to be a successful FX trader, the euro warrants your attention also.
When day trading the EUR/USD there are a number of factors to take into consideration. Economic data releases, central bank statements, and the latest news are just a few considerations your strategy must take into account.
If you want to join the likes of Andrew Krieger and Bill Lipschutz in the forex hall of fame, you will also ensure you choose suitable trading hours. You may be able to trade 24 hours a day, but the quality of trades often trumps quantity. Finally, conducting EUR/USD fundamental analysis through charts and patterns is essential.
For more day trading guidance, see our forex page.
Why Trade this System?
One of the main reasons we chose the EURUSD as the underlying asset of choice to trade this system is because it is the currency pair that is traded the most in the forex market. This ensures that as a binary options instrument, it is available for trading all day long and will have good liquidity, enabling you to get good pricing. You will not have to buy costly bets that will have a greater risk than reward.
If you are starting out in binary options trading, this is a great way to start your trading career. This system can be used to trade the Rise/Fall variety of binary options. If your broker does not offer this trade type, you can opt for the High/Low variety or the Touch/No Touch binary option.
Setting Up the System:
Most binary options brokers do not provide charts for use in trading analysis, so you have to get the charts yourself. Since the underlying instrument is a forex instrument, you can easily get a chart by downloading an MT4 platform from any of the popular forex brokers like forex.com.
Recommended Brokers for Trading EUR/USD
The strategy in question is to be implemented on a 30-minute chart, and the strategy will make use of the following indicators:
1) MACD (12, 26, 9): This is a momentum indicator that shows the strength of the signal.
2) Parabolic SAR (default settings of 0.02, 0.2): This is a trend signal.
Here are the trade rules for this strategy.
BULLISH SENTIMENT: In order for the EURUSD to go bullish, we wait for the Parabolic SAR indicator to indicate a buy signal, which occurs when the stars of the Parabolic SAR indicator appear below the price action on the chart. We also wait for the MACD lines to cross from negative to positive.
BEARISH SENTIMENT: In order for the EURUSD to go bearish, we wait for the Parabolic SAR indicator to indicate a sell signal, which occurs when the stars of the Parabolic SAR indicator appear above the price action on the chart. We also wait for the MACD lines to cross from positive to negative.
Once you have got a confirmation of the signals, the next step is to choose the binary option trade of your choice. For this example, I will recommend choosing the Touch/No Touch option. This is easier to predict than a Rise/Fall or a range option, as all you need is a touch, (or no touch) to make money on this trade.
If you are bullish on the EURUSD, you can decide to purchase a Touch option contract, selecting a strike price to the upside. Make sure you identify the resistance points and keep your strike price below the resistance so you can be sure the price action will actually touch the price barrier you have set. You can then purchase a “No Touch” option contract, selecting a price barrier to the downside. In this instance, you can set your price barrier well below the nearest resistance so the price action has no chance whatsoever of touching your price barrier.
Repeat the same trade sequence in reverse fashion if your signal indicates a bearish outcome. Whichever trade you decide to take, you should at least have 4 different trade options to benefit from:
- Touch – Price barrier between market price and nearest resistance.
- No Touch – Price barrier below the nearest support.
- Touch – Price barrier between market price and nearest support.
- No Touch – Price barrier above nearest resistance.
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