The two types of analyses to use to anticipate the Euro Dollar exchange rate:
As summarily indicated in our introduction and to best anticipate the upcoming movements in the Euro Dollar currency pair it is best to use several distinct methods among which the principal ones are the fundamental and technical analyses.
- Here, the technical analysis is the analytical method that is uniquely based on a study of the stock market charts of the EUR/USD currency pair. The technical analysis consists of analysing the technical indicators with the objective of identifying a trend as well as the specific and strategic rate levels therefore the best conditions for trading. As we shall examine later, relating to the technical analysis, certain indicators are particularly suitable for anticipating the movements of this pair such as the support and resistance levels, the trend lines and the mobile averages which we know are particularly influential for the Forex market.
- The second analysis to use for anticipating the movements of the Euro Dollar pair is the fundamental analysis. As we shall see this type of analysis is uniquely based on the interpretation of data and in an economical context in order to define a rate direction and predict the future trends of this currency pair.
Although there are Forex traders that base their investments uniquely on the technical analysis and others on a fundamental analysis the best way to trade in the EUR/USD exchange rate is by combining both strategies in order to obtain more reliable and trustworthy signals.
How to anticipate the trends of the Euro Dollar rate using a fundamental analysis?
We will now go a little further in depth on this subject by closely examining the fundamental analysis of the Euro Dollar rate by examining the factors that can influence this exchange rate.
It should be remembered here that the EUR/USD currency pair corresponds to the relation between the United States and the Euro zone through the intermediary of each currency’s value. Therefore, for this fundamental analysis we need to pay particular attention to the economic news of these two geographical areas that often have a strong and direct impact on the foreign exchange market. We therefore offer you the opportunity here to learn more about the information you should prioritise for this fundamental analysis.
We would particularly follow the interest rates fixed by the ECB, or European Central Bank for the Euro zone and the FED, or Federal Reserve for the United States. Also, in a more general manner, press conferences from these two entities should be closely monitored. Other regularly published economic data should also be watched such as the non-agricultural employment rates, the unemployment rates, information on wages and the inflation rates as well as the consumer price index, the GDP growth rate, the retail sales, durable goods orders and those for industrials as well as industry sentiment and consumer confidence.
To ensure you miss none of the major economic information we strongly recommend you follow an economic calendar such as those available through financial intermediaries and online trading platforms.
How to anticipate the trends of the EUR/USD using a technical analysis?
Although the fundamental analysis of the EUR/USD that we have explained will enable you to detect advantageous rising or falling signals you should always complete a technical analysis of this currency pair. In fact, we know that the EUR/USD currency pair displays significant volatility that can be highly influential on its rate.
The technical analysis will also enable you to better understand this volatility through the use of certain specific chart indicators such as the ATR or Average True Range. This can be displayed on a chart in the form of a coloured line (generally blue) which indicates the average range of this currency pair rate over a pre-determined number of periods depending on the chart time line chosen. Generally speaking it is advantageous for experienced traders to profit from a strong volatility, these more volatile trading periods are not recommended however for beginner investors.
Of course, this is not the only volatility indicator available on the trading platforms.
You should also use other chart indicators, particularly the support and resistance levels. A support level, if broken through, will indicate the continuance of a falling trend and, if it resists, a reversal to a rise. To the contrary, a resistance level that has been broken through indicates a continuance of a rise and a resistance that holds a probable reversal to a falling trend.
Advantages and risks of trading the EUR/USD:
Although the EUR/USD currency pair is one of the most popular on the Forex market, trading in it does present both advantages and risks.
Among the advantages of this currency pair we particularly note the fact that this currency pair is available for trading 24/7, this market also boasts a high liquidity and the spreads used by the Forex brokers online are relatively low. We also note there is a lot of reliable economic and financial information freely available on the Euro and American dollar which is helpful for compiling a fundamental analysis of this pair and enables you to prepare more pertinent strategies.
Concerning the risks present when trading the EUR/USD we particularly note those related to the use of the leverage effect which requires an in depth knowledge of online investments. To summarise, you need to master the costs of spreads and swaps.