Forex Marketing in Eurozone

The European Union (EU) is a brotherhood of 27 member states which started from a tiny gang of six neighboring states in 1951. By the magical powers of the Treaty of Maastricht, it then grew into a large economic and political bloc, making it the largest economic side or zone in the world.

Talk about playing a higher role in international trade and global economic affairs! .Among these EU member states, 19 countries adopted the euro (EUR) to be their common currency. These countries comprise the Eurozone, which can be called the European Monetary Union (EMU) or Euroland.

Members of this elite club are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece…, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

Apart from adopting a common currency, these countries at the same time share the same financial policy set by the European Central Bank (ECB).

Eurozone: Facts and Figure

Member of country: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain

• Size: 1,691,658 square miles

• Population: 505,665,73

• Density: 300.9 people per square mile

• Head of European Commission: Ursula von der Leyen

• Head of European Parliament: David-Maria Sassoli

• Head of European Council: Donald Tusk

• Currency: Euro (EUR)

• Main Imports: Machinery, vehicles, aircraft, plastics, crude oil, chemicals, textiles, metals

• Main Exports: Machinery, motor vehicles, aircraft, plastics, pharmaceuticals and other chemicals, Antonio Banderas, Penelope Cruz, Jean-Claude “The Muscles from Brussels” van Damme

• Imports country allies: China 15.89%, U.S. 11.97%, Russia 11.22%, Norway 6.13%, Switzerland 5.14%

• Exports allies country: U.S. 19.07%, Russia 8.03%, Switzerland 7.49%, China 6%, Turkey 4.14%

• Time Zones: GMT, GMT+1, GMT+2

• Website: https://europa.eu/

Economic Overview

The Eurozone, which is confirmed to be more than half of the country in the EU, ranks as the largest economy with a GDP of $18.45 trillion in 2011. Being a services-oriented economy, services that notice for a whopping 70% of its GDP!

On top of that, the Eurozone takes pride in being the second most attractive investment market for domestic and international investors. As an economic union, the Eurozone has a standardized system of laws, especially for trade. The size of their entire economy makes the Eurozone a major player in the international trade arena.

As a results of the separate countries are rated as one entity, this allows them to facilitate trade easier, mostly with its number one trade partner, the U.S. This active participation in international trade has a crucial impact on the role of the EUR as a reserve currency. This is because countries that transact with the Eurozone need to have a notable amount of reserve currencies in order to reduce the rate of currency trade risk and minimize transaction costs.

Monetary & Fiscal Policy

The European Central Bank (ECB) used to be the governing body for the financial policy of the EU. Led by the current ECB President Christine Lagarde, the Executive Board consists of the ECB Vice President and four other policymakers. Together with the top guns from the national central banks around the Eurozone, they make up the ECB Governing Council who votes on financial policy changes.

The main aim of the ECB is to maintain price stability in the entire region – quite a tall order! To achieve this target, the Eurozone signed the Maastricht Treaty which applied a certain set of criteria for the member country. Here are some of the requirements:

• The hike ratio of the country must not exceed the average inflation of the three best performing (lowest inflation rates) states by more than 1.5%.

• Their long-term interest rates must not exceed the average rates of these low-inflation states by more than 2%.

• Exchange rates must stick inside the boundaries of any trade's cost mechanism for at least a set of years.

• Their government deficit must be less than 3% of their GDP.

If a country couldn't to meet these conditions, it is penalized with a hefty fine. The ECB makes use of its minimum bid rate and open market operations the way it is financial policy tools. The ECB minimum market price or repo cost is the cost of return the central bank gives to the central banks of its member states. They make use of this rate to control inflation.

Open market operations, on the other hand, are used to manage interest rates, control liquidity, and establish a financial policy stance. Such operations are conducted through buying or selling of government securities in the market. In order to increase liquidity, the ECB buys securities and pays with euros, which then gets circulated. Conversely, to mop up high liquidity, the ECB sells securities in trade for euros.

Other than making use of those financial policy tools, the ECB can opt to intervene in the foreign trade to further cap inflation. Because of this, traders pay close attention to comments from the Governing Council members since these could impact the EUR.

Getting to Know the euro

A part from being dubbed the anti-dollar, the euro is on another way named “fiber.” Some say that this nickname was derived from the Trans-Atlantic fiber optic, which was used for communication, while some argue that it was from the paper used to print European banknotes way back then! Here are some of the other characteristics of the euro.

Here are some of the other characteristics of the euro.

They call me the Anti-Dollar!

With the euro popularly called the anti-dollar, EUR/USD is the most actively traded currency pair. As such, it is the most liquid of the major pairs and gives the lowest pip spread.

Im busy during the London session

The euro is most active during 8:00 am GMT, at the beginning of the London session. It often has little movement during the latter half of the U.S. session, around 5:00 pm GMT.

and I've had a few relationships.

EUR/USD is often linked to the movement of capital markets, like bonds and equities. It is negatively correlated to the movement of the S&P 500, which represents the performance of the U.S. stock market.

This correlation was thrown out of sync after the 2007 financial crisis though. Now, EUR/USD has a slightly positive correlation with the S&P 500. EUR/USD is negatively correlated to USD/CHF, reflecting how the Swiss Franc moves in almost perfect tandem with the euro.

Important Economic Indicators for the euro

Gross Domestic Product – Gross domestic product is the heart estimate of economic growth in the area. Since Germany is the largest economy in the Eurozone, its GDP tends to move the euro the most.

Employment Change – The euro is very responsive to changes in employment, especially in the euro area's largest economies like Germany and France.

German Industrial Production – This measures the change in the volume of output from Germanys manufacturing, mining, and quarrying industries. Because of this, it reflects the short-term strength of German industrial project

German IFO Business Climate Survey – This is one of the countrys key business surveys. Conducted monthly, this takes into notice the current business situation of Germany and at same time expectations for future conditions.

Budget Deficits – Recall that one of the criteria in the Maastricht Treaty requires that Eurozone economies keep their debt-to-GDP ratio below 60% and their deficit less than 3% of their annual GDP.

Failure to achieve these targets could result in fiscal instability in the Eurozone.

Consumer Price Index – Since one of the goals of the ECB is to maintain price stability, they keep an eye on inflation indicators like CPI. If the annual CPI deviates from the central bank target, the ECB could make use of its financial policy tools to keep inflation in check.

What Moves the EUR？ Eurozone Fundamentals

Reports of strong economic performance by the Eurozone as a whole, or by its country citizens, this can amplify the euro higher. For example, better than expected GDP reports from Germany or France could encourage traders to be bullish on the euro.

Uncle Sams Groovy Moves

Sudden changes in market review, buoyed mostly by U.S. economic data, tend to have a great effect on pair EUR/USD.

Being considered the anti-dollar, the euro is said to be shaken by talks of reserve diversification away from the U.S. dollar. Euro as the new reserve currency, anyone？

Differences in Rates of Return

The bond spread between 10-year U.S. government bonds and 10-year Bunds (German bonds) usually illustrate the direction of EUR/USD. If the difference between the yields of the U.S. bonds and Bunds widens, EUR/USD moves in favor of the currency with the higher . Similar to bond yields, the dissimilarity of the interest % also serve as an excellent signs of the EUR/USD movement. For example, some traders usually compare the Euribor futures ratio with the Eurodollar futures rate.

Just to clear things up: “Euribor” is an acronym that stands for Euro between bank offer rate, and which is the % of Euro zone which the banks use for inter-bank transactions, while Eurodollars are deposits denominated in U.S. dollars.

Trading EUR/USD

EUR/USD is traded in amounts denominated in euros. Standard lot sizes are 100,000 EUR and mini lot sizes are 10,000 EUR. The pip value, which is denominated in U.S. dollars, is calculated by dividing 1 pip of EUR/USD (that‘s 0.0001) by EUR/USD’s cost.

Profit and loss are denominated in U.S. dollars.

For one std.lot position size, each pip movement is worth 10 USD.

For one mini lot position size, each pip movement is worth 1 USD.

Margin calculations are based in US dollars.

Assuming, if the current EUR/USD pair tax is 1.4000 and the leverage is 100:1, it will take $1,400.00 USD in the available margin to be able to trade one std. lot position of 100,000 EUR.

When the EUR/USDs rate moves higher, a larger available margin in U.S. dollars is expected. The lower the EUR/USD pair cost, the lower the expected available margin in U.S. dollars.

EUR/USD Trading Tactics

Pro-euro moves, which clearly take place upon the release of strong economic figures from the Eurozone, create opportunities for long EUR/USD trades. Anti-euro moves, which usually occur when weak Eurozone economic reports are released, provide a basis for a short EUR/USD trade.

Since EUR/USD can usually be a computation of traders view on the U.S. dollar, sensing the direction of the U.S. dollar could create some trade strategies for EUR/USD.

For example, if traders are expected to buy the dollar if the U.S. retail sales report prints better-than-expected results, you could look for a fortune to short EUR/USD. Aside from waiting for EUR/USD pair to retest or break crucial in terms of support and resistance levels, taking a trade based on retracements works for this pair. EUR/USD is highly susceptible to retracements, which means that by configuring either short or long orders at important Fibonacci levels could results some pips.

By catching retracements, one may be able to enter the trade at a better price rather than jumping in the direction of the price movement. If youre a bit more adventurous, there are other euro pairs, like a pair of EUR/JPY, EUR/CHF, and EUR/GBP, that you can check out! Each EUR cross has cool and unique characteristics too.

For example, EUR/JPY, which is more volatile than EUR/USD, tends to be more active during the Asian and London sessions. EUR/GBP and EUR/CHF tend to be range-bound most of the time. The latter is more prone to large spikes though due to lower levels of liquidity.