How To Trade EUR/GBP
One of the most important things to keep in mind while trading the EURGBP in binary options is that it is a cross. Its movements are determined by the economy of the Uk and that of the Eurozone. Therefore, traders should carefully watch what happens in this two areas economically.
Trading A Currency Pair – EURGBP
By the fact that the fact that EURGBP is affected by the European and England’s economies, it means that there is a very important role played by the Central Banks of these two places; the ECB, which is the European Central Bank, and the BOE, which is the Bank of England. Traders should, therefore, be aware of the main events concerning monetary policies both in England and Eurozone.
The ECB for instance, holds meetings every month, on the first Thursday of every month except January due to holidays. Each of these meetings is followed by a press conference 45 minutes later, where the president of the ECB reads the statement of the Governing Council and also takes several questions from the representatives of the press.
The Euro Pound drastically moves as a result of the press conference than due to the actual interest rate decision of the ECB.
Then, on the same day that ECB is releasing its interest rate decision, BOE is setting the monetary policy 45 minutes prior to the ECB’s interest rate decision release. The BOE has no press conference after the release of the decision; not unless the interest rate has been changed.
Important Economic Releases To Watch In Europe
Economic news from Europe greatly affects the movement of the EURBGP currency pair. Traders should keep a keen eye on these news releases especially those which have a larger impact like the CPI, Consumer Price Index.
European CPI represents the inflation in the Eurozone and the European Central Bank depends on this inflation when setting the monetary policy.
The other important European news releases are the PMI, Purchasing Manager Index. The PMI indicates whether a sector is expanding or contracting. This, in turn, gives a clue as to whether the CBE will interpret the information as bullish or bearish.
The other news releases that traders should look at is the GDP, Gross Domestic Product, and the unemployment rate.
Unlike the effects of most Central Banks on currency pairs with a currency associated with the specific bank, the EURGBP doesn’t experience much movement when the ECB is having its monthly meetings. This is mainly due to the fact that the ECB meetings are followed by press conferences during which the market prices of the EURGBP, fluctuate drastically. Sometimes it is even impossible to trade during this time since the market becomes too volatile and the liquidity at times gets too low.
In the long run, the economic releases during the month help traders in making a wise guess as to what the ECB will do when they meet. For example, if the inflation drops below what the ECB had targeted during their last meeting, then it is only obvious for traders to expect interest rates to be cut, which will affect the Euro and the EURGBP currency pair as a whole.
Important Economic Releases To Watch In UK
The UK economy is one of the most important ones in the world of financial markets. United Kingdom’s currency, the Great Britain Pound, commonly referred to as the GBP is usually affected by some economic news releases in the UK.
The UK does not use the Euro Pound as its domestic currency. It uses the GBP which is controlled by the Bank of England, which is the Central Bank of the UK. The BOE (Bank of England) mainly has one mandate of keeping the inflation level at about 2%. To address this matter, the BOE has a Monetary Policy Committee (MPC) which holds a meeting once in every month in order to assess the country’s economy.
Contrary to the ECB meetings, the MPC meetings are never followed by any press conferences, not unless the interest rates are being changed.
Among the economic news releases which greatly affect the GBP and as a result the EURGBP, is the Gross Domestic Product (GDP). And when it comes to this, traders should be keen in noting the preliminary release since it rarely contradicts the final release.
In addition to the GDP, there are other economic releases such as the Retail Sales and the Purchasing Manager Index (PMI), which indicates the level of inflation. In actual sense, the Bank of England (BOE) is mostly concerned with the inflation. That is why the financial markets move very aggressively during the release of the Inflation Letter.
The PMI is usually split into two: the construction sector and the manufacturing sector.
What To Expect From Economic Releases
During the economic releases, one should expect very sharp movements of the EURGBP as well as to all other Euro currency pairs. Especially when using larger timeframes, one can easily notice the correlation between EURGBP and EURUSD. In most cases, these two currency pairs move together.
This shows that if a trader looks at the EURUSD and notices a rise in the market prices, then there is a similar rise in the EURGBP currency pair. The same is the case if there is a fall of the market prices of the EURUSD.
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References and Further Reading:
- CORRELATIONS BETWEEN RECONSTRUCTED EUR EXCHANGE RATES VERSUS CHF, DKK, GBP, JPY AND USD M. (AUSLOOS GRASP)
- A historical examination of optimal real return portfolios for non-US investors (Salvatore Brunoa, 1, , Ludwig Chincarini)
- Funding liquidity risk and deviations from interest-rate parity during the financial crisis of 2007–2009 (Cho-Hoi Hui, Hans Genberg, Tsz-Kin Chung)
- The foreign exchange market: return distributions, multifractality, anomalous multifractality and the Epps effect (Stanisław Drożdż, Jarosław Kwapień, Paweł Oświȩcimka and Rafał Rak)
- Contrarian strategy and overreaction in foreign exchange markets (George S. Parikakisa, Theodore Syriopoulos)