Today, I will deal with the most popular Forex trading asset – the EUR USD pair. We shall dive into the history of EUR/USD, explore modern trends, and have a look at euro-dollar trading strategies. This overview will be of interest to both beginners and professionals!
The article covers the following subjects:
The EUR/USD Pair Overview
The EURUSD pair is the most popular forex trading asset, also known as the major currency pair, which is justified. Trading the EUR/USD forex pair accounted for almost a quarter of all FX trades, according to the BIS survey. Its main competitors, USDJPY and GBPUSD, account for about 13% and 9%. Therefore, the EUR/USD is the most traded pair.
Structure of Forex operations
The popularity of the EUR/USD currency pair is fueled by high media attention and investors’ demand. From 2016 to 2019, the Forex daily trading volume increased from $5.1 trillion to $6.6 trillion, while the share of EURUSD increased by almost 1%. It’s about $600 billion!
The USD history began after the proclamation of the United States’ independence in 1776 when the dollar became the local currency. The influence of the greenback, as the dollar is called because of its color, increased significantly after World War II. The British pound could not compete with the dollar due to the weakness of the UK economy. For a long time, Europe had been hatching a design to create a currency that would outperform the US dollar. As a result, in 1999, the euro emerged – a single currency for 19 member countries of the Eurozone.
A lot of time has passed since then. Trading the US dollar is dominant in the Forex market. According to the IMF data, the greenback’s share in the FX reserves of the world’s central banks as of December 2020 is 59.5%, the share of the euro is 20.6%. However, we cannot say that the single European currency is not a competitor to the US dollar. Before the euro introduction, the share of the US dollar exceeded 71%.
Structure of central banks’ foreign exchange reserves
EUR/USD trend in 1999-2021
The EURUSD features quite high volatility. In the beginning, the EUR/USD currency pair was trading below parity. However, starting from 2022, the euro has never been below $1. The euro-dollar all-time low is 0.82; the record high is close to 1.604.
EURUSD Lately Trends EUR/USD
In 2020, the global economy faced a recession, which lasted for only two months. Because of the panic in financial markets, the demand for the greenback sharply increased. As a result, the EURUSD dropped to a level of 1.064, the lowest since April 2017 (1).
Central banks launched colossal monetary incentives of trillions of dollars to support their economies. The Fed was even called crazy because of a sharp federal funds rate cut from 1.75% to 0 and the start of the QE at a monthly pace of $120 billion. The Federal Reserve balance sheet was growing rapidly, approaching $9 trillion, and the US dollar weakened against a basket of major currencies. In particular, the euro, from January to March, was almost 16% up and reached $1.234 (2).
EUR/USD trend in 2020-2021
In late 2020, the euro was expected to be trading up. Many banks suggested the EURUSD should have exceeded 1.25 in 2021. Some aggressive bulls expected the euro around $1.3. In reality, things turned out to be different. Due to the slow vaccination in the EU, which turned into new lockdowns and a double recession, the euro collapsed to 1.1705 (3).
Thanks to vaccines, investors became reassured in the global economic recovery. Furthermore, the EURUSD buyers were again…