When it comes to liquidity, the euro or EUR ranks second. The most highly liquid currency in the world is the US dollar. The euro is followed by the Japanese yen or JPY and the British pound or GBP. Currency traders speculate on the strength and weakness of the euro with the help of pairs that help to establish in real-time the currency’s comparative value. Forex brokers often offer a number of related currency pairs, but most traders focus on the six pairs, which are the most popular ones. They are as follows:
EUR/USD
EUR/CHF
EUR/JPY
EUR/GBP
EUR/AUD
EUR/CAD
The euro is traded continuously from the evening on Sunday up to the afternoon on Friday, that is five days a week, in the United States of America. This provides traders with opportunities to make significant amounts of profits. However, there can be fluctuations in volumes and the degree of volatility during each of the 24-hour cycles of trading. The bid/ask spread in the case of currency pairs that are less popular may widen during quiet periods and narrow during active periods. It is true that the key benefit offered by forex trading is the ability to open and close orders according to the convenience of the trader, but generally a major part of the trading occurs during the active periods.
Among the above said currency pairs, the most traded one is the EUR/USD pair. This is the most popular and liquid currency pair in the world. This pair is offered by most brokers with a tight spread during the course of the 24-hour cycle. As a result of the multiple intraday catalysts, the price of the currency pair moves upward or downward, setting up tradable trends along various time frames. Additionally, long-term and short-term swings work very well along with classic range-bound strategies. These include trading channels and swing trading.
Euro Price Catalysts
There are a number of factors that cause the price of the euro to change. In this respect, the best time for trading the euro is when economic data are being released and during the hours when the equity, futures and options exchanges are open. Traders need to do two-sided research ahead of the data releases when planning or preparing to trade the euro. This is because the catalysts in the Eurozone area (local catalysts) cause the prices of popular pairs to move as much as the catalysts in each one of the cross venues. Additionally, the release of economic data in the United States of America has a significant impact on the prices all of the currencies around the world. This can be attributed to the overriding importance of currency pair EUR/USD.
Further, the political and economic macro events that are capable of triggering price actions among equities, bonds and currencies also significantly influence the prices of EUR crosses. A perfect illustration of this phenomenon is the devaluation of China’s yuan in August last year. Natural disasters are also known to create a coordinated response like this. For example, the tsunami in Japan in 2011.
Release of Economic Data
In general, the monthly economic data for the Eurozone are released at Eastern Time (ET) 2:00 a.m. Therefore, the best times to trade the EUR pairs are 30 minutes to 60 minutes before and one to three hours after the specified release time. The popularity of these trading times can be attributed to the fact that these news releases impact the price actions of at least three out of the five of the most popular EUR pairs. Further, these times overlap with opening of the trading hours in the US. This results in the trading of a large volume of these currency pairs on either side of the Atlantic.
On the other hand, the release of the economic data in the U.S. is generally scheduled between ET 8:30 a.m. and 10 a.m. The release of data in the US also generates significant EUR trading volumes with the odds for strong trending price movements in the case of the most popular pairs remaining strong. The release of economic data in Japan often gets less attention. This is because they are frequently released at either ET 4:30 p.m. or ET 10 p.m. During this time period, the Eurozone will be in the midst of its sleep cycle. However, it is often observed that the trading volumes EUR/JPY and EUR/USD pairs spike sharply during these time periods.
Euro and Operating Hours of Equity Exchanges
Many traders who buy and sell EUR often track the trading timings of equity exchanges such as those in New York and Frankfurt and Chicago futures and options market. They make good use of the time overlap between these exchanges. This is because the localization helps to generate huge trading volumes during the midnight hours in the east coast of the U.S. and continue through the night into the lunch hour in America. The trading activity dips sharply after that.
This activity cycle changes whenever the Federal Reserve’s interest rate announcement is scheduled. The FOMC often announces the interest rate decision or releases the minutes of the previous meeting at ET 2:00 p.m. The forex traders stay at their desks during such announcements or releases to take full advantage of the price action that happens the period. While the Bank of England (BoE) releases rate decisions at ET 7:00 a.m., the European Central Bank or ECB does that at E 7:45 a.m. Both the releases are scheduled to take place during the period when the trading volumes are very high.
Final Thoughts
The six popular EUR currency pairs listed above provide traders with both short-term and long-term trading opportunities and a lot of options. As said above, the best times to trade the EUR coincides with the times when the economic data are scheduled to be released such as ET 1:30 a.m., 2:00 a.m., 8:30 a.m. and 10:00 a.m. and the time between midnight and noon when the trading times of American and European exchange coincide and there is liquidity in the market.