January 27, 2023

Euro: The Common Currency in the Forex Market

LQDFX Forex news Blog: Euro: The Common Currency in the Forex Market

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The euro is one of the most important currencies in the world. Further, the single currency is one of the currencies that traders worldwide prefer to trade in the Forex market. The single currency belongs to Majors and is the second most popular among Forex traders following the greenback.

On 1 January 1999, 11 EU countries settled on their exchange rates. Such countries adopted a common monetary policy under the ECB, the Eurozone’s central bank launching a new single currency: the euro.

The European Central Bank is the official EU institution with main task to maintain price stability in the euro area. Further, its tasks include the definition and implementation of monetary policy for the euro area and banking supervision.

The eurozone currency was initially an electronic currency used by banks and financial markets and for cashless payments. On 1 January 2002, cash, in form of banknotes and coins, entered into circulation.

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Today, the common currency is the currency of the 19 countries of the Eurozone. Euro’s code is EUR and its symbol is the €, which comes from the Greek letter epsilon.

Outside the eurozone, a total of 22 non-EU countries and territories have currencies that are directly pegged to the euro.

Euro and the economic crisis

In the 20 years since its adoption, the euro’s international role reached its peak at the beginning of 2010. Its use dropped during the 2007-08 monetary crisis. The euro has not recovered since, and the dollar remains the most widely used currency. The euro is the second global currency. However, its share of each market is just 20%.

Three Economic Releases affecting the Euro

  • Euro Area Consumer Price Index (CPI)

CPI measures the change in the price of goods and services from the consumer perspective. It is a key measure of purchasing trends and inflation.

A higher than expected CPI should be interpreted as bullish in favour of the single currency. On the other hand, traders shall consider lower than expected CPI as bearish for the EUR.

  • ECB Rate Announcement & Press Conference

The monetary policy of each national bank affects the national currency. Accordingly, the monetary policy adopted by the ECB affects directly the EU single currency. Decisions for interest rates are among the most impactful for a currency. Thus, investors shall consider this announcement regarding any monetary policy changes and the ECB’s outlook on the euro zone economy.

  • Eurozone GDP

It measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is the key indicator for considering whether an economy is healthy or not. Traders shall interpret stronger than expected GPD data as positive for the EUR. Respectively, lower than expected data shall be interpreted as negative to the EUR.

Sources: Wikipedia, investing.com, Eurostat, Europa.eu

PLEASE NOTE The information above is not investment advice.