63.21 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.21 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What drives the EURUSD pair?

Let’s talk talk about what influences the EURUSD pair, which is the most traded pair in the world. We will cover the major fundamental drivers of the US dollar and the euro.

Before starting to trade, it is very important to decide whether you want to be a short-time (intraday) trader, or you would prefer a longer-term approach, which is usually called swing trading. Swing traders tend to hold their positions for a couple of days or weeks.

Why is this important? Firstly, it will define your trading strategy and also your risk management, but secondly, there are other things to watch when you trade intraday and when you trade on a longer time frame.

So, if you are a short-time trader, the main fundamental tool to watch will be the economic calendar.

 

Economic calendar – what to watch?

There are several releases each month that tend to move the financial markets, in our case, the EURUSD pair. Let's talk about them.

Non-farm payrolls (NFP)

The most important release in the calendar is the US labor market data, typically released on the first Friday of each month. Traders pay attention especially to the number of new jobs created in the previous month, known as the non-farm payrolls (NFP). Should the number be higher than estimates, the greenback usually strengthens, and if the US economy creates fewer jobs than expected, the US dollar tends to decline.
 

Other important indicators (wage growth, unemployment rate, etc.)

But it's not as simple as that. Along with the NFP number, there are many other releases – such as wage growth, the unemployment rate, the underemployment rate, working hours, etc. Over the previous years, the wage growth number has grown in importance as the US economy is at its full employment, but wages have been lagging, which might refrain inflation from rising steadily. Thus, we could say that the wage growth figure has become more important lately. You should look for these releases in the calendar, check some of the previous numbers to see how the markets reacted after them.
 

ISM survey

Another important indicator in the calendar is the ISM survey from the manufacturing and the non-manufacturing sector (services). In the US, the services sector constitutes a bigger portion of the US GDP; therefore, the non-manufacturing sector is more important. These numbers are typically released during the first days of each month, and volatility usually picks up afterward. If the number is above 50.0, it indicates an expansion in the sector. On the other hand, if the number drops below 50.0, it implies a contraction in the sector, which will usually lead to a recession in the economy if the sector remains below 50.0 for several months.
 

Inflation numbers

Inflation numbers are another major release. The Fed wants to see inflation above 2%, and there are several inflation indices to watch, mainly the CPI, PPI, and PCE indices. When the inflation release comes out above the 2% threshold, the USD might strengthen as it could lead to rate hikes by the Fed. Alternatively, if inflation declines below 2%, the back could weaken as it might lead to rate cuts by the Fed. Once again, you can look up the recent CPI (or other) releases in the calendar and see how traders reacted to them.
 

GDP

GDP is another significant number watched by market participants. GDP is a delayed indicator, as it only calculates all the goods and services produced by the country over the last quarter. Thus, it's not forward-looking as the labor market, ISM surveys, or others. GDP is usually released on Friday, and there are quarter-on-quarter and year-on-year numbers. However, as investors usually have a good feeling about how the economy behaved over the previous months, volatility after this release tends to be smaller.
 

What about data from the EU?

All the mentioned economic indicators were from the US. There are not many releases from the EU, which tend to move the markets, and investors usually ignore them. However, all the numbers coming out from Germany are important for long-term traders (such as GDP release, ZEW and IFO surveys, inflation, labor market, etc.). Moreover, the PMIs from the individual economies are also important, especially when judging their long-term trends.
 

And last but not least - central banks

Last but not least, there are central banks. Both have a major influence on the financial markets and especially on the EURUSD pair. Both of them are currently (March 2020) in an easing mode – cutting rates and printing money.

We could say that the reaction of the EURUSD pair is the biggest after central banks' decisions, especially when they do/announce something unexpected. The ECB usually decides about monetary policy on Thursdays, while the Fed does it on Wednesdays. Both central banks meet up eight times a year.

Central banks bring us to the next part of this article – swing traders. Until now, we talked about the short-term volatility, usually after data releases from the economic calendar. Short-term traders can capitalize on it, but long-term traders try to ignore these numbers as they focus on the big picture and underlying trends.

Macroeconomic trends

There are three major catalysts for long-term traders, and we already spoke about them. Its inflation, central banks, and economic activity. However, in long-term trading, investors pay attention to long-term developments of inflation, rates, and economic activity, naturally.
 

Short-term trading approach

So, the main difference between short-term and longer-term trading is obvious (we are still talking about fundamentals only). When the mentioned data are released, you are trying to either trade the release right now or to take advantage of a short-term trend it could create. You usually exit the position on that given day. This applies for intraday traders.
 

Long-term trading approach

However, as a long-term trader, you need to watch the inflation figures for a couple of months as a whole. For example, if inflation declines below 2% for several months, you want to be shorting the greenback on any rallies (or possibly selling breakdowns to new lows) as the Federal Reserve will most likely loosen its monetary policy soon. Thus, the trend in the US dollar will probably be bearish. After you open your position, you will use a larger stop-loss, and you might end up with this trade for a couple of days or even weeks.
 

As you might have guessed already, inflation has a large impact on monetary policy. Therefore, if the central bank, in our case, either the Fed or the ECB, starts cutting rates and introduces quantitative easing, the domestic currency will be expected to weaken. This happened in 2014 for the euro and in 2009/2010 for the greenback.
 

On the other hand, should inflation shoot above the 2% benchmark and stay there for many months, the central bank is supposed to hike rates and taper its QE programs. This happened in 2016-2017 for the USD.
 

And finally, the domestic currency of the country, which has more robust growth, tends to appreciate faster. So investors will pay attention to the mentioned ISM reports (and many other economic reports) and try to make a big picture where the economy is heading. Lately, the US economy is vastly outperforming the EU one, and the EURUSD pair is, therefore, in a bearish trend.
 

So let's make a small recap.

If you like intraday trading, pay attention mostly to the US economic numbers, which are the labor market data, ISM surveys, inflation, and the Fed. You can also track the ECB decisions as these usually leave a volatile reaction.

On the other hand, for swing traders, it is also important to watch all these numbers, but you also need to create a big picture. So, follow long trends and try to trade on daily/weekly charts. If data are worsening, you might want to sell rallies in the currency, and if data are improving, you might be buying on dips. In this trading approach, you usually hold your traders for several days or weeks.

EURUSD - quotes and definition

If you open our MetaTrader 4, look for the EURUSD symbol and press new order, the following box will popup.
 

EURUSD v platformě MT4
Source: Purple Trading Metatrader 4
 

In volume, you need to put in "how much" you want to trade, and the number is represented in lots. One lot is 100,000 EUR, so if you want to trade half a lot, you will be trading 50,000 EUR. The smallest increment you can trade is 0.01 lot, known as the micro lot. In this case, you will be trading 1,000 EUR.

The boxes below volume represent stop loss and take profit – you can use these right now, or you can leave them untouched and set up your stop loss and take profit later after opening the trade.

Another box to mention is the order type. You can either use the market execution (meaning you will instantly buy or sell at the current market price), or you can use limit and stop orders – these are pending orders.

Lastly, as you can see, you can either sell or buy the EURUSD pair. If you click sell, you will be shorting the pair at the current price. If you click buy, you will be going long on the pair at the current market price.

You can also take a look at the quotes for this pair. It is 1.08040/1.08044, meaning the spread on this pair is roughly 0.4 pips as the fourth digit number represents one pip.

That's it for now! We hope you enjoyed the article, and we wish you successful trading, whether short-term or swing trading.

Now you can try how Forex works on our trading platform!

 
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FAQ

Long
Show answer
A long position (long speculation) is a trade that a trader enters when he expects the market to rise. Thus, the trader will buy the asset in question (BUY). The position will appreciate in value when the price of the instrument rises.
Lot
Show answer
The basic unit of traded volume. For currency pairs, it is 100,000 units of the base currency. Lot size varies between individual CFD-type instruments as it is based on the number of contracts set for each one.

 
Micro-lot
Show answer
A micro-lot is a trading unit derived from the standard trading unit, which in the Forex world is the lot. While 1 lot represents a transaction of 100,000 units of the currency mentioned first in a currency pair, the value of 1 micro lot is 1,000 units.

If you are interested in the relationship between lots, micro-lots, leverage, and margin, we recommend reading the article about micro-lots we wrote on the subject.

A micro lot is 0.01 lot.
Mini lot
Show answer
A mini lot is a volume of 0.1 lot.
Quote currency (counter currency)
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It is the second currency in the currency pair. For example, in the EURJPY pair, the quote currency is JPY.
Short
Show answer
Short speculation is a trade where the trader anticipates a market decline. So the trader will sell the asset (SELL).
Swap
Show answer
A fee charged for holding a trading position overnight. It is expressed in points or percents and it is directly proportional to the volume of the trading position held. Please note the Swap for Forex pairs and precious metals is being charged 3x on Wednesday, which includes also the weekend swaps. (Swap is charged at Wednesday - Thursday midnight) For other symbols is being charged 3x on Friday. (Swap is charged at Friday - Saturday midnight)
63.21 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.21 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.