Characteristics of the currency pair EURUSD
What are currency pairs?
Currency pairs are a popular tool for Forex trading.
A currency pair is two currencies, the price of one expressed through the cost of the other.
We used to perceive money as a measure of the value of things and value it through the set of products that can be bought. Thus, one of the essential functions of money is to measure the value of things. A second way of relating to the function of world money is to display the value of one country's currency through the currency. This mapping constitutes a currency pair and is the object of trading in the foreign exchange market.
Every currency pair on the Forex market has its denomination which is customary for any country. It is made up of currency codes which, as a rule, have a format consisting of three Latin letters.
For example, USDJPY is the US dollar exchange rate against the Japanese yen:
- EURUSD is the Euro against the US dollar.
- GBPUSD - British pound to the US dollar.
- USDCHF - US Dollar to the Swiss franc.
- USDCAD - US Dollar vs Canadian Dollar.
The first currency in the currency pair is called the base currency. When transactions are made in the pair, it is sold and bought. The second currency is the quoted currency of the pair; it represents the price of the base currency. So, for example, by buying EURUSD you are buying euros for dollars, and by selling it, you are selling euros to receive American dollars.
From the point of view of a particular country, a quotation for a currency pair containing the national currency may be direct or reversed. In a forward quotation, the value of the foreign currency is expressed in the national currency; in a reverse quotation, it is the other way around.
At Forex, the notion of national currency loses its meaning, as it is a world currency market. However, the US dollar is still the main reserve currency. That is why at Forex, all currency pairs containing the US dollar are called direct quotes (do not confuse them with forward and reverse quotes). Currency pairs that do not include the US dollar are called cross rates.
The foreign exchange rate of each pair consists of two prices - the selling price (ask price), which in exchange slang is called the Bid price, and the buying price (bid price), which in exchange slang is called the Ask price.
The Bid is the price at which a trader can sell a currency pair at any given time. The Ask is the price at which he can buy.
Let's take the EURUSD exchange rate as an example: 1.3052 / 1.3055.
The first figure in the quote is the bid price your counterparties are prepared to buy this pair, which means that you can sell at this price.
The second number is the asking price at which your counterparties are willing to sell, and if you are eager to buy, this is your buy price.
In our example, if you want to buy 1000 EUR - you will need 1305 USD, and if you sell 1000 EUR, you will get 1302 USD.
The difference between the Bid and Ask price is the spread of the currency pair, which is expressed in pips and three pips in the example.
A pip is the slightest possible amendment of a currency pair, expressed in the quoted currency.
For the EURUSD pair, one pip is 0.0001 USD.
So we have established what a currency pair and an exchange rate are. Now it is time to familiarise ourselves with the trading sessions.
So what exactly is a trading session?
Currency market trading is divided into regions. The significant areas are America, Europe, Asia, Australia, and Oceania. In each of these regions, there are the most prominent exchanges on which transactions take place.
Active trading periods at these exchanges are called trading sessions.
A trading session is a time during which exchanges and central banks of the same geographical area actively trade in the currency market.
Trading starts on Monday. That is when the trading floors open in Wellington, New Zealand. The closing time is linked to the end of trading on Saturday at 01:00 on the Chicago Stock Exchange.
The process itself resembles an endless baton, which exchanges from different regions pass through the chain, maintaining a continuous trading cycle, in this order: Wellington, Sydney, Tokyo, Hong Kong, Singapore, Moscow, Frankfurt, London - and the day ends in New York.
Trading sessions types
There is a clear division of the total number of exchanges into four sessions. Therefore, it is necessary to know their opening hours according to GMT classification:
|Title of session||Financial Centres||Opening at local time|
|Hong Kong, Singapore||09:00|
|European||Frankfurt, Zurich, Paris||15:00|
Sometimes there is a gap in quotations after the weekend. This is known as a Gap. How does it appear? Saturday and Sunday are the weekends in the Forex market - there is no trading. Quotes in your terminal are stopped, but this does not mean that the world currency market price cannot change.
For example, an important political or economic event may occur over the weekend. Then, on Sunday night, at the beginning of the Asian session, the price may differ from what we saw on Friday night when the market closes at the end of the American session. In that case, the trader will see in his terminal a gap in quotations - a gap.
What are the differences between the different trading sessions?
It is impossible to trade successfully without a thorough knowledge of all the nuances and regional characteristics. Even though all these exchanges are located in different parts of the world, they constitute a single financial body in which there are no insignificant points.
Knowing even the minutest details will help you understand the trading patterns of the different trading times. All the sessions have distinctive differences in terms of forex trading.
- By trading volumes.
In terms of the volume of trades carried out per day, the leading exchanges are located on the European continent, followed by the American session, and the list is closed by the Pacific and Asian sessions.
The percentage of trading volumes is as follows:
- 50% of trades are traded on European exchanges.
- 30% are on the U.S. trading venues.
Asia and Pacific Exchanges account for an equal 20%.
- By currency activity.
One has to realize that different currency pairs are active during specific trading sessions. This means that there is the most activity or volatility in a pair, and you can make (or lose) money on it.
Before the opening of the European markets, the main movements occur in the Asian market. The trading volume increases from 03:00 hours onwards. In this region, trading is usually more or less calm, and most of the time, the markets are flat while trading in Asia. The picture below shows typical EUR/USD trading during this session.
During the Asian trading session, the Japanese Yen, New Zealand Dollars and Australian Dollars could be the most active pairs. The increased activity in the Asian session occurs mainly only in conjunction with the actions of the Japanese National Bank and the USD/JPY fluctuations.
The most important currencies, such as USD, EUR, GBP and CHF, are traded in the European session, causing the most activity.
This activity reached its peak after the London Stock Exchange session when all European institutions interacted with each other simultaneously. At this time, pairs with the U.K. currency as a constituent are actively traded.
The next burst of activity on the market occurs after trading on the U.S. trading floors when the "majors" are active (the most important currencies are USD, EUR, GBP and CHF).
When European and American exchanges coincide, trading is most active. During this period, market activity is significantly influenced by the economic calendar news.
Before you start trading, be sure to consider these nuances for successful trading.
Best sessions for different currency pairs
The main currencies in the Forex market are the US Dollar and European Currencies. These currencies form the most popular currency pairs. That's why most economic news is released on European and American sessions, which influence the movement of significant currency pairs.
During the Asian trading session, economic news can be released that affect the AUD, NZD and JPY. However, it cannot be said that for pairs of these currencies, the Asian session will necessarily be volatile:
- Firstly - essential news is not released that often for these currencies.
- Second - the currency pair is two currencies, and it is not always enough news about one currency to initiate a substantial price movement of the pair.
When not to trade?
You should not trade two hours before the end of the American session and one hour after the beginning of the Asian session.
During the end of the American session, price movements are already sluggish and not suitable for trend-following trading systems. At the same time, they are not such low volatility that they are ideal for scalper systems of the Asian session.
The first hour after the trading day opening during the Asian session is a particularly low-volatility time, when the price is almost standing still. The spread during this time is usually considerably widened, and so much so that there is no way the price movement will bring you a profit because it is lower than the spread. So if your system is set up for the Asian session, you better start it no earlier than 1 hour after starting a new trading day.
Trading time frames
The role of time frames is difficult to overestimate: they allow for consistency and avoid confusion.
Time frames are time intervals during which price movements are grouped together and different patterns are formed. They allow you to easily carry out technical analysis of the market and develop a trading strategy.
Time frames can be:
- M1 - one-minute interval;
- M5 - interval of 5 minutes;
- M15 is a 15 minute time frame;
- M30 - 30-minute time frame;
- H1 - one hour interval;
- H4 - 4-hour time frame;
- D1 - daily interval;
- W1 - weekly interval;
- MN1 - one month time frame.
It is worth noting that the time frames are closely linked. The linking of time frames involves the mutual influence of trading periods on each other and their interdependence with each other.
How to choose the right time frame?
To choose the most suitable and appropriate timeframe you need to follow several criteria, such as:
- The type of strategy chosen or developed.
- The trading temperament (it is of particular importance).
- Trader's psychological indicators.
For example short timeframes are great for scalpers.
Timeframes from 15 minutes to 60 minutes are good for Day Traders.
The currency pair EURUSD
The EUR/USD currency pair is the ratio of the euro currency to the US dollar currency. The Euro is the base currency in this pair, and the US dollar is the quoted currency. This means that the quotation of the currency pair EUR/USD shows how many dollars to pay for 1 euro.
The Euro and the US Dollar are the major currencies on the Forex market, and therefore the EUR/USD currency pair is also referred to as a major currency, the so-called majors.
Factors affecting the value of a currency pair:
As with all asset classes, the price of any commodity, currency pair is determined by various indicators, or more precisely, by a set of indicators. In our case, a combination of the US and EU economies.
The most important triggers for Euro-Dollar rising or falling (for both Europe and the USA) are:
- interest rates;
- consumer price index;
- producer price index;
- gross domestic product;
- unemployment rate;
- industrial production index;
- business activity index;
- number of jobs in non-agricultural sector;
- level of quantitative easing (relevant in recent years).
When deciding whether to buy or sell the EUR/USD pair, it is imperative to analyse these indicators published in the economic calendar of events. Technical analysis factors include technical analysis of the EUR/USD chart, patterns, and indicator readings.
How to start trading EURUSD in Malaysia?
There are two ways to trade currencies: either on a western exchange to trade EUR/USD directly or in the Forex market. The first option can be time-consuming, involves a lot of paperwork and requires a lot of start-up capital.
This is why we recommend a Forex broker, a reliable and stable partner. Register on the platform, and you will be able to start trading currency pairs.
Often they also give you the chance to try trading on a demo account with virtual money. This is a great way to try your strategy and familiarise yourself with the platform without spending any money.
A lot depends on the suitable time frame, trading session and strategy. Inexperienced traders may begin to learn how to trade such a popular and liquid currency pair as EURUSD. If you want to succeed in trading, we encourage you try different strategies, study various aspects of trading, read news related to your trading instrument and take risks. Then success will come to you. Good Luck!