Forex Trading With the Euro
After the US Dollar, the Euro is the 2nd largest circulated currency in the world and is unique in the Forex market in that it represents the single currency adopted by 16 countries within the Eurozone rather than simply being the currency of one nation. The Euro is the world’s second favourite reserve currency after the US Dollar and the Eurozone represents the world’s 2nd largest economy region after America. Although not all of the countries within the EU have adopted the Euro as its currency, the number of countries who have chosen to use it has increased from 12 to 16 in recent times with other countries also expressing an interest in joining. The European System of Central Banks, including the ECB (European Central Bank) are responsible for the supervision of the Euro and the ECB is the single authorised body with the power to create monetary policies from its headquarters in Frankfurt. The other members of the ESCB print, mint and distribute bank notes and coins.
Information About the Euro’s History
The Euro is a relatively recent currency, having only been established as recently as 1995. In order to be able to adopt the currency, member states of the Eurozone must meet specific criteria including a budget deficit of under 3% of GDP, a debt ratio of under 60% of GDP, low inflation, and interest rates that are close to the EU average. It was in 1995 that the name “Euro” was first adopted and in 1999, it was first introduced in the form of banking, electronic transfers and traveller’s cheques in 1999 with an ongoing introduction process within the members states that allowed existing currencies to be used legally until the introduction of the new Euro coins and notes in 2002.
Which Countries are in the Eurozone?
The Euro represents the currency of 19 of the 28 European countries. At the current time, the following nations have adopted the Euro as their sole single currency:
- Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia and Spain.
Together, these countries consist of around 332 million people altogether. The Euro is also the currency of some non-EU countries including Kosovo and Montenegro as well as a number of microstates such as Monaco, Andorra, the Vatican City and San Marino and 4 overseas EU members’ territories – St Pierre, St Bathelemy, Miquelon, French Southern and Antarctic Lands, Akrotiri and Dhekelia. These territories add another 3 million people to the Eurozone total. The Euro is also used in Cuba as a trading currency and also in Syria. Several currencies are also pegged to the Euro.
The Economy of the Eurozone
The Eurozone’s economy is primarily dependent upon the services sector, which is responsible for almost three quarters of its GDP. The manufacturing industry follows behind, making up almost 24% of GDP and agriculture, responsible for almost 2% of GDP. The tourist industry is also very important as the EU is one of the world’s most popular tourist destinations, attracting overseas visitors from all over the globe. Internal tourism is also important and has been made especially convenient thanks to both the single currency and the Schengen treaty which permits all EU citizen to travel freely within the member states without any need to acquire a visa. The top tourist destination in the Eurozone is France, with Spain, Italy and Germany following behind.
Influencing Factors Upon the Euro
There are numerous significant influences which have an impact upon the value of the Euro in the Forex market. These include:
- Minimum Bid Rate – this is set by the ECB who releases their decision over interest rates each month. Decisions about Eurozone interest rates are made by the 6 ECB Executive Board members and the central banks of the 16 Eurozone countries.
- Employment figures – employment data is key to economic health and the release of the Eurozone’s consolidated employment numbers as well as the figures for the major Eurozone economies likes France and Germany can have a key impact on the Euro’s value.
- GDP – the change each year in the value of services and goods produced by the Eurozone’s
- Trade Balance – the difference between the value of exports and imports, with a surplus indicating more exports and a deficit indicating more imports.
- Consumer Price, Producer Price and Retail Sales indexes – all of these indicators measure the inflationary pressure on an economy and will have an impact upon interest rates and monetary policies.
- Sentiment indicators – sentiment surveys like the German ZEW Economic Sentiment survey will give an indication on the overall perception of the strength of the economy.
- International news – political, economic and environmental news can have a significant impact upon the exchange rate. Any sign of unrest such as rioting could cause the Euro’s value to drop for example.