Money | Debts | Financial Freedom

Euro Currency (Part III)

ECB publishes monthly bulletin detailing analysis of economic conditions. This bulletin can give important signals to changes in the monetary policy. Forex market participants widely watch the comments by the members of the Governing Council of ECB. These comments frequently tend to move the Euro.

Now EUR/USD cross is the most liquid currency. All major euro crosses are highly liquid. The movements of EUR/USD currency pair are used as the primary gauge to judge the health of both European and the United States health. Euro is also known as the anti-dollar since it is the dollar fundamentals that have dictated the movements in the EUR/USD pair from 2003-2008.

EUR/JPY and EUR/CHF are very liquid pairs too and are used to judge the health of the Japanese and Swiss economies. EUR/USD and EUR/GBP are great trading currencies as they have tight spreads, make orderly moves and rarely gap.

Euro was launched in 1999. It is still a new currency. Euro has unique risks. There are number of risks unique to the Euro. The most important is the exposure to the economic, political and social development of 15 member countries.

It could affect the stability of the entire region although more countries are expected to join EMU if a member country drops Euro and reverts back to its original national currency because it believes that ECB actions are not in its best interests.

ECB has the power to determine monetary policy for its 15 member countries. However, we can say Euro is a currency without a country. With that comes the political pressure of 15 governments. This political pressure frequently tests the actions of ECB.

The present global financial crisis is unlike any in the past. However, the rapid response of ECB to the present global financial crisis in the shape of deep liquidity injections has transformed its reputation. The spread between 10 year US Treasuries and 10 year bunds can indicate Euro sentiment.

As a forex trader you should know one important interest rate. It is the Euro Interbank Offer Rate (Euribor). This is the rate offered from one large bank to another on interbank term deposits. Traders and investors tend to compare the Euribor futures rate with the Eurodollars futures rate.

Lower spreads between these two interest rates make the European assets less attractive. Higher spreads between the two rates makes the European fixed income assets more attractive. Merger and Acquisition activities between US and European multinationals have important implications for EUR/USD pair. Large deals have often significant short term impact on EUR/USD if in cash.

Important indicators for Euro are Preliminary GDP that includes France, Germany and Netherlands, German Industrial Production, Harmonized Index of Consumer prices (HICP), M3, German Unemployment, Individual country budget deficit. The largest countries in EMU are Germany, France and Italy. Study of the economic data of these three countries is also important.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

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