5 Major Factors Affecting the Direction of EUR/USD

By: Andrew_Cioffi

The EUR/USD pair is a major trading pair at the markets. According to https://www.Forexobchodnik.sk  the volume of trade recorded each day for this pair is the highest of any other pair at the exchange market. In order to get a proper insight into what factors affect the direction of this par, a little background is important for each of the units on the pair. To start with, the Euro is the largest currency in Europe and it is the second largest in the world – only behind the US dollar/

So what factors affect the direction of the EUR/USD?

Trading sessions

A major factor that affects the pair is the trading session. In general, trading around the world is a 24-hour affair. There are however small breaks between that period which are significant enough to affect the direction of the trading pair. When the traders in the European market close out their positions, for instance, the liquidity in the market is affected. This also happens for the American and Asian trading sessions.

Political factors

Another factor that affects the direction of the EUR/USD pair is the political factor. Political instability in any given market creates a lot of uncertainty. When traders are uncertain of the outcome of their trades, they tend to trade less. This, in turn, means that the daily volumes for the trading pair will go down. Major political decisions that affect the markets are also crucial for the direction of the EUR/USD pair. In recent years, political decisions in America and Britain have had consequences for the pair.

Interest rates

Interest rates are at the center of all economic activities. The forex market is a consequence of what is happening in the economies. Interest rates are crucial in any economy because they determine the spending levels and the levels of investment as well. Factors like inflation and GDP are directly affected by interest rates in the economy. Since the interest rates affect the GDP directly, they also affect the exchange rate indirectly.

Economic reports

Another key factor that determines the direction of the EUR/USD are economic reports. Reports about the economy are made every year. The events that precede and succeed the period of economic reports cause a lot of excitement in the markets. This excitement can affect the levels of investment and trade. Apart from the annual reports, weekly and monthly reports are also crucial especially for traders. Good reports boost the confidence of investors while bad ones bring investment down. All these issues ultimately reflect at the exchange market on the EUR/USD pair.

Financial Institutions

Finally, financial institutions are at the center of all economic activities. Major banks in the USA and Europe determine the monetary policies in the respective economies. This means that the heads of these institutions also have a huge influence on what happens in the markets. Every time the head of the Federal Reserve Bank in the USor the European Central Bank makes announcements, changes are seen in the direction of the EUR/USD.

By Andrew Cioffi

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