Currency pair means exchange rate of any two currencies in regard to each other. This means comparing the value of one currency with another. All currencies are traded in pairs. Some of the examples of currency pairs include USD / CHF, USD / JPY, EUR / USD and many more.
Euro / USD is one of the major currency pair among the four major currency pairs. It has the maximum potential to derive profit. It is also often referred to as the most liquid currency pair. EUR / USD is the abbreviation which is used for the currencies of the European Union and United States of America. One must be aware that to purchase one unit of U.S. dollars, how many units of Euro currency is needed. Trading this currency pair is also called trading the ‘euro’. Its valuation is done like this: 1 unit of euro per x U.S. dollars.
This signifies that if the trading is done at a value of 1.50, we have to understand that to buy 1 unit of Euro, one will have to spend 1.50 U.S. dollars. The value of this currency is affected by their mutual relation and in relation to other currencies. Due to this reason differential interest rates of European Central bank and the Federal Reserve Bank will affect the value of theses two particular currencies. To strengthen U.S. dollar if Federal Reserve enters the open market then the value of EUR / USD can decline.
EUR / USD and USD / CHF can have a negative correlation with USD / CHF and positive correlation with GBP / USD currency pair. This happens as a result of the positive correlation of British Pounds, Euro and Swiss Franc.
Any frequent traders in the forex market can surely report that in the last few weeks, the value of U.S. Dollars has crashed in comparison to all the major currencies of different countries in the world. This has happened as a result of the financial crises being faced by United States, thus leading to a huge amount of uncertainty over the financial markets.
What will be the result of this drop on the EUR / USD currency pair?
Most of the people have started believe that the worst phase of the United States Dollar is now over and that the value of the U.S. Dollar will again begin to rise. However, the economic indicators show that the value of Euro will continue to strengthen as opposed to the U.S. Dollars. There can be a number of reasons behind this such as:
• The economy of the European Union has not been affected by the current U.S. economy crisis.
• The interest rate in European countries is a lot higher in comparison to the American, and since Federal Reserve is likely to continue lowering the interest rates in future, European central bank does not show any signs of following the same.
All these things indicate that the value of Euro is likely to become strong as compared to U.S. Dollars and not in the opposite way.