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Trading the Euro

After the US dollar, the euro currency (EUR) is the most widely traded foreign currency, and the EUR/USD currency pair is arguably the forex trade that sees the most activity on any given day. The euro is the latest and the most ambitious attempt at a currency union so far, and is used by 13 countries inside the European Union, with Estonia being the latest addition on 1 January 2011. It is also used outside the EU, for example as the currency of Montenegro.

The euro was introduced onto global foreign exchange markets in 1999, three years before it became available in coins and notes. Although it suffered initially due to a lack of confidence on the part of traders and a severe downturn in the French and German economies in 2001-03, the euro rallied in the years since.

The so-called Eurozone represents one of the largest and most prosperous economic blocs in the world. Interest rates for the Euro are set by the European Central Bank in Frankfurt, and are closely watched by traders. But because the Eurozone is so economically diverse, it remains hard for currency traders to decide what the right price should be for the euro: economic figures released by the German government are still considered valuable, but they do not speak for the Eurozone as a whole.

There continues to remain a great deal of speculation in the financial media about whether the euro would be able to survive European sovereign debt crises, or the Eurozone break up into smaller currency blocs. While some European governments continue to struggle financially, it has been a popular currency to short against other, stronger currencies like the Canadian Dollar or the Swiss Franc. However, the EUR/USD pair remains one of the most popular currency pairs to trade and a good potential starting point for new currency traders.

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