Influencing Factors on EUR/USD
THE EURO-ZONE – The 12 countries that have adopted the Euro are Germany, France, Italy, Spain, Netherlands, Belgium, Austria, Finland, Portugal, Ireland, Luxembourg and Greece. Other member states comprise of Czech Republic, Denmark, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, Slovakia, Sweden, and United Kingdom.
EUROPEAN CENTRAL BANK (ECB) – Controls monetary policy for the Euro-Zone. The decision making body is the Governing Council, which consists of the Executive Board and the governors of the national central banks.
ECB POLICY TARGETS – The ECB has a primary objective of price stability. It has two main “pillars” of monetary policy. The first one is the outlook for price developments and risks to price stability. Price stability is defined as an increase of the Harmonized Index of Consumer Prices (HICP). While the HICP is very important, a broad number of indicators and forecasts are used to determine the medium term threat to price stability. The second pillar is monetary growth as measured by M3. The ECB holds a Council meeting every other Thursday to make announcements on interest rates. At each first meeting of the month, the ECB holds a press conference in which it gives its outlook on monetary policy and the economy as a whole.
INTEREST RATES – The ECB’s refinancing rate is the Bank’s key short-term interest rate used for managing liquidity. The difference between the refinancing rate and the US Fed Funds rate is a good indicator for the EUR/USD.
ECONOMIC DATA – The most important economic data generally from Germany, France, and Italy. Germany maintains the largest economy in Europe. Key data are usually GDP, inflation (CPI and HICP), Industrial Production, and Unemployment. From Germany in particular, a key piece of data is the IFO survey, which is a widely watched indicator of business confidence. Also important are the budget deficits of the individual countries, which according to the Stability and Growth Pact. Countries also have targets for reducing their deficits further, and failure to meet these targets will likely be detrimental to the euro (as we saw with Italy’s loosening of its budget deficit guidelines).
CROSS RATE EFFECT – The EUR/USD exchange rate is sometimes impacted by movements in cross exchange rates such as EUR/JPY or EUR/GBP. It is possible for the EUR/USD to fall as a result of significantly positive news in Japan causing a declining EUR/JPY rate.
ADDITIONAL FACTORS – 10-Year Government Bonds, 3-month Euro Deposits and Futures Contracts, and Political conditions.
DISCLAIMER: Trading futures, options on futures and off-exchange Foreign Exchange market (FX, Forex) is very speculative in nature, involves considerable risk and is not suitable for all investors. Before participating in trading, you should carefully consider your investment objectives, level of experience and risk appetite. Investors should only use risk capital when trading because there is always the risk of substantial loss. Most importantly, do not invest money you cannot afford to lose. Any mention of past performance is not indicative of future results. Account access, trade executions and system response may be adversely affected by market conditions, quote delays, system performance and other factors.
Past results as represented in testimonials are not necessarily indicative of future results or success. Testimonials may not be representative of all reasonably comparable students. Trading involves significant risk of loss and may not be suitable for all investors.
RISK WARNING: Trading futures and foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your monetary objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your deposited funds and therefore you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent advisor if you have any doubts. Past returns are not indicative of future results.
Compass FX and its affiliates assume no responsibility for errors, inaccuracies or omissions in these materials. They do not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Compass FX and its affiliates shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This is not a solicitation to buy or sell currency or futures. Compass FX is compensated for its services through commissions and/or the spread between the bid/ask prices. All replies should be sent to email@example.com . Replies sent to firstname.lastname@example.org will be received by the Compass FX corporate email system and are subject to storage and review by someone other than the recipient.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.