Euro is the relatively new currency first introduced by the European Union in 1999.The currency has been adopted by the 16 countries of Europe. They are collectively known as Euro zone.
The EUR/USD is the most widely traded pair in Forex. Both the currencies are powerful currencies. The dynamism and high trading volumes of the two currencies make them very liquid, creating greater opportunities of profit by trading them. Oil is bought and sold in Dollars. Thus heavy trading of dollars takes place through out the world. The euro and dollar are the only currencies, which largely traded.
The movement of the currency pair rests on the following factors:
- Economic performance
The individual economies of both the currencies cast an influence on them. If USA witnesses higher economic prosperity than European Union, the dollar becomes stronger, if vice versa, the Euro strengthens. Interest rates, balance of trade etc are the key indicators governing the rates of the currency. It the interest rates are higher in America, the dollar becomes more expensive against the Euro.
- Political Stability
He recent times have seen lot of political instability among the countries that are the members of European Union. Political conditions are the deciding factors of monetary and financial reforms in the country. There has not been complete peace among the various countries, leading to decreasing rate of euro.
Trading of EUR/USD pair, trade regularly hedge. Hedging is done to minimize the risk. There is a high risk involved due to the high volatility.
The currency pair leaves no room for arbitrage. It is because here are no pricing fluctuations. Any deviations in the market are quickly rectified.
There is less of a difference between bid ask prices. Bid ask spread is low. This lowers the risks of the traders. Therefore the euro dollar currency pair is traded more than the other currencies in the forex.
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