Within currency trading circles, there is a lot of attention being paid to the EUR/USD trade. The reason why is because many observers believe that the euro will likely decline to 1.20 as it did in 2008. The reason why is because the US dollar has a tendency to strengthen during times of economic uncertainty. This natural tendency is being exacerbated by the fact that Europe is dealing with a financial crisis that does not really show any signs of ending any time soon.
One of the reasons why the EUR/USD trade is watched by so many observers is because this particular trade is extremely liquid and relevant to a wide number of different people. While it’s certainly true that some economists believe that the European Central Bank has created an environment whereby the euro is in many ways stronger than the US dollar from a fundamental standpoint — this simply doesn’t hold up to the reality of the fact that people are frightened that the entire Euro zone may break apart.
You see, the European Central Bank has one primary mission. That mission is to control inflation. By contrast, the US Federal Reserve has a dual mission. They are supposed to somehow control inflation while at the same time help create an environment of full employment. This is why the US Federal Reserve has lost a lot of credibility in recent years. By contrast, the European Central Bank is unwilling to monetize that and appears to be more serious about forcing systemic changes to individual countries budgets within the euro zone.
Some people argue that the day they arrive when the US dollar and the euro reached parity. While it’s not entirely clear if and when that may happen, it has become painfully obvious that some of the peripheral countries within the euro zone are having a very difficult time in the bond market. For example, Portugal, Italy, Ireland, Greece, and Spain have all suffered significant setbacks. Unlike Ireland, Portugal, and Greece — many observers believe that Italy and Spain may be too large to really bail out. Therefore, it is critical that these countries begin tackling their budget deficits of reducing their debt. However, that is a lot easier said than done. This creates additional stress on EUR/USD.
To the extent you’re somebody who is brand-new to the world of foreign exchange trading, the EUR/USD trade may very well be one which you will want to start watching carefully. This is especially true if you happen to live in either Europe or the United States. Some people really believe is a fellow a massive amount of money can be made by betting against the euro. What you will learn if you decide to get more involved with currency trading is that the process takes place when you place a trade involving two separate currencies. In other words, the euro will need to rise or fall when compared to another currency.
You may ask yourself whether or not it’s possible to make a trade based on how they euro performs against the Australian dollar or some other currency. That is certainly a possibility. However, the EUR/USD trade continues to be incredibly popular simply because a lot of the variables that are driving the trade itself have been in the news headlines in recent months. While it may seem impossible to imagine that there would be somebody who was longer the euro at this juncture, there is an argument to be made that the problems in the euro zone will be corrected without having introduced significant inflation. This would be a net positive for the currency.
If all of this sounds really interesting and intriguing, you owe it to yourself to learn more about the EUR/USD trade and to become more knowledgeable about currency trading in general.