EUR/GBP trading: in brief
- The EUR/GBP is a currency pair representing the exchange rate between the euro and sterling.
- Understanding economic and political events in Europe and the UK is crucial to anticipating movements in the EUR/GBP.
- Traders should keep a close eye on ECB and BoE announcements and key economic data to make informed decisions.
- Due to its sometimes moderate volatility, prudent risk management is essential to avoid large losses when trading the EUR/GBP.
- Indicators such as moving averages, RSI and Bollinger Bands can help identify trends and potential entry/exit points.
As with many of the Forex pairs, the EUR/GBP is highly sensitive to numerous exterior factors. Firstly, the effects of an announcement are certainly highly influential on the short term rate. To be sure not to miss important communications you should consult the economic calendar on a daily basis, especially the morning between 10h and 11h for news concerning the Pound Sterling and before 14h30 for that relative to the Euro Zone.
The most important signals to follow are, in order, the GDP of each of the zones, the capital input and withdrawal, the monetary policies, inflation, and, in a global manner, all the political and economic events that could produce a psychological impact on the investors and encourage them to buy or sell their positions.
Equally do not forget to take account of the exchange rate of each of these currencies with other international currencies. It is known for example that when the Euro or Sterling Pound lose ground against the American Dollar, this favours their competitiveness for export and, over the medium term, enables a recovery in the economy so leading anew to a rising trend.
The EUR/GBP currency pair is the eighth most traded currency pair on the Forex and it is quoted with four decimal places according to its supply and demand.
Another particularity of this currency pair is that it can be quoted either way. You can therefore sometime see this currency pair quoted as GBP/EUR by some brokers.
As the EUR/GBP currency pair is known for having a relatively low volatility, it is renowned for being a trending pair. This signifies that this pair can frequently be observed as experiencing very long rising or falling trends with little intermediate fluctuation.
Trading the EUR/GBP online is an activity accessible to seasoned investors, offering the opportunity to profit from fluctuations in the single European currency and the pound sterling.
Before you get started, it's important to understand the basics of Forex trading and to familiarise yourself with the tools and platforms available.
Here are a few steps to follow to trade EUR/GBP online:
1. Choose a reliable broker:
2. Define your trading strategy:
3. Open a trading account:
4. Place a trade order:
5. Monitor your positions and analyse your results:
Let's assume that you have carried out an in-depth technical and fundamental analysis of the EUR/GBP currency pair. You have identified a short-term uptrend based on technical indicators such as moving averages and the RSI, as well as an expectation of accommodative monetary policy from the European Central Bank (ECB).
You decide to open a long EUR/GBP position using an online trading platform. You specify your entry level (buy price), your stop-loss level to limit losses in the event of an adverse market move, and your profit target to take profits when the market moves in the expected direction.
Let's say you've entered the position at a level of 0.8700 and you've set your stop-loss at 0.8650 to limit losses, while your profit target is set at 0.8800 to take profits when the market reaches that level.
Over the next few hours, the EUR/GBP begins to rise, confirming your analysis. The market quickly reaches your profit target of 0.8800, triggering the automatic closing of your position and generating a profit for your trade.
In this example, you have managed to profit from an uptrend in the EUR/GBP using in-depth analysis, effective risk management and precise trade execution on an online trading platform.
Let us now study each of these two currencies in more detail by examining how to analyse and trade them effectively. The Euro is of course the official currency of the Euro zone which forms part of the European Union. It is also the second currency in terms of trading throughout the world after the American dollar with nearly 33.4% of all currency trades. We can explain this popularity with traders by the importance of the Euro for international trade.
The value of the Euro is actually directly correlated to the worldwide economic cycles. Therefore, when there is growth worldwide the risk aversion is weak which is beneficial for the Euro currency and, to the contrary, when the global economy suffers a crisis then the risk aversion is significant and the Euro tends to lose its value. We can therefore state that the Euro is a risky value and not a safe haven.
In the past several events and crises have strongly influenced the rate of the Euro such as the subprime crisis in 2009 that led to a positive correlation between the Euro and the sterling pound until 2013, and again in 2015 for a few months.
During the subprime crisis the Euro rate remained relatively normal despite a strong risk aversion in the markets due to a fall during this same period of the value of the American dollar. However, it is generally the internal crises of the Euro zone that negatively influence the rate of this currency.
This was notably the case in 2010 with the Greek crisis. Greece was then just about in default and threatened the stability of the Euro zone. The anxiety relating to the possible exit of this country from the Eurozone created doubts with the investors as to the durability of the Euro monetary union model. We therefore witnessed a logical but major fall in the value of the Euro on the Forex market but finally Greece was saved from default due to an emergency rescue plan that enabled the Euro rate to stabilise.
During this period the Euro fell on the financial markets. Finally Greece was saved due to an assistance plan and the EUR currency stabilised.
However Greece is not the only country that threatened the stability of the Euro in the years following 2010. Other countries such as Italy and Portugal also created anxiety in the markets. We therefore saw the creation of the European Financial Stability Facility or EFSF with the intention of assisting countries experiencing extreme difficulties. However in 2015, when it was believed that Greece had been stabilised, the radical left came into power causing a renewal of anxiety throughout Europe as it challenged the agreement passed between Greece and the European Union leading to new negotiations. This renewed anxiety caused a new fall in the value of the Euro. We can also analyse the variations in the Euro value according to the European economy in general. Between 2008 and 2009 the financial crisis of the Euro zone reached its peak and the GDP fell but the currency remained relatively stable. It was only from the end of 2009 that the Euro suffered the consequences of this crisis that in fact was reaching its end whereas growth recovered until 2011. From 2011 to 2013 we note a new diminution of the European economy but this did not significantly impact the Euro rate which remained relatively stable. Finally, from 2013 to 2016 the weak growth of the Euro zone led to a period of strong volatility of this currency which led to a general rising trend of this currency value. We could therefore state that the European economic growth data does not have any significant impact on this currency.
To summarise, to analysing effectively in the Euro and its exchange rate, it is primarily necessary to focus on the Euro zone crises that often lead to a major drop in this currency value. This can be explained by the fact that the Euro is a fairly recently introduced currency which does not reassure traders over the long term. The risk aversion is actually the most influential factor as it concerns the taking of positions on the Euro whereas the growth of the Euro zone in fact has relatively little influence.
The Euro therefore resembles the sterling pound or GBP in that it is a volatile currency that can therefore be considered as a little risky.
Let us now pass on to the method of analysing in the value of the sterling pound or GBP. The British pound is the official currency of the United Kingdom and the fourth most popular currency traded on the foreign exchange market with nearly 12% of the trading. The importance of the British pound is due to the City holding a predominant role in the global financial sector.
As with the Euro, the British pound is particularly sensitive to risk aversion and therefore depends on worldwide economic cycles. As a result, this currency has the tendency to increase in value when the economy is healthy and to fall in times of crisis.
Depending on the period in question the rate of the British Pound can display a positive or negative correlation with other currencies at risk such as the Euro. For example, between 2010 and 2013 we note a positive correlation with these two currencies whereas in 2008 and 2009 the pound sterling fell although the Euro remained stable. We can therefore state that the GBP is more sensitive to risk aversion than the Euro. Concerning the negative correlation phases between the British pound and the Euro, we can particularly cite the year 2014 and the end of 2015 due to various factors that you should take into consideration.
Among the other factors to take into consideration when trading in the sterling pound is of course the British economy as the growth of this country is highly variable with numerous peaks and a high volatility. In 2009 the GDP of the United Kingdom fell by nearly 5% due to the financial crisis before slowly recovering between 2010 and 2012 and then accelerating its growth during 2013 and displaying record growth in 2014. If we compare these years in charts displaying the British pound we note a massive rise in its value whereas the value of the Euro dropped. We can therefore use the periods of crisis and growth in the British economy as a fundamental indicator.
Since the end of 2015 we do however observe a major fall in the rate of the GBP due of course to the Brexit referendum announcement leading to the possible exit of the United Kingdom from the European Union.
We can therefore analyse the British pound by basically using the risk perception level of investors relating to the financial markets as this currency appears to be particularly sensitive to risk aversion in general with an increase in its value in the case of a strong risk aversion and a fall in the case of a weak risk aversion. Risk aversion depends mainly on the worldwide economic growth and is therefore generally easy to anticipate. We also recommend the monitoring of the economic situation of the United Kingdom which is sensitive to economic cycles and which of course also has a major impact on this currency. The GBP is considered as a growth asset and is therefore highly influenced by this fundamental data.
To summarise, a growth in the British economy in a time of economic crisis would be the best sign of a drop in the EUR/GBP whereas a crisis that touches the entire European Union and Great Britain would be more favourable to this currency pair with the Euro remaining stable and a fall in the British pound.
Investing in the EUR/GBP generally involves different strategies to those used for short-term trading. Here are some of the best strategies for investing in this currency pair:
There are several ways to follow the EUR/GBP currency pair and its evolution. Indeed, you can consult this exchange rate directly from the Internet and via specialised sites, but you can also rely on the Forex charts of your broker, which will provide you with more indicators such as volatility and current trends in the price of this parity.
If you want to do a good EUR/GBP share price analysis, you need to keep a close eye on data relating to both the Eurozone economy and the UK economy. It is possible to know the most influential publications for this currency pair by consulting the economic calendar offered by Forex brokers or by subscribing to a personalized news feed.
The only way to invest in an exchange rate like the EUR/GPB is to register with a trading platform. This will allow you to take an upward or downward position on the price of this currency pair. It is possible to trade the euro up against the pound sterling but also in the opposite direction by trading the euro down against the pound sterling depending on the trends spotted.
