02 Jan TRADING EDUCATION: EURGBP
The EURGBP is known colloquially within forex trading as simply the EURGBP or less frequently as the ‘Chunnel’, in reference to the Tunnel that connects France and Great Britain under the English Channel.
The EURGBP is an exemption to Market Convention as although you can trade both the GBPEUR and the EURGBP it is quoted. The EURGBP became the dominant form of the pair due simply to market preference so it is the EUR that is quoted first even though it carries a lesser value to the GBP.
The EURGBP represents a cross between the two biggest economies in Europe – the Euro-zone (the Euro, EUR) and the United Kingdom (Great British Pound, GBP). Given the physical vicinity of the two economies and the significant trade relationship between them, the EURGBP is considered to be less volatile than many other EUR or GBP based cross pairs.
Because of this interdependence and the pairs slightly more sedate nature, the EURGBP is one of the first pairs new traders experience as they learn to trade forex. However, because of the above the EURGBP is highly sensitive to changes to monetary policy by either the European Central Bank (ECB) or the Bank of England (BoE).
Major Economic News Events affecting the EURGBP
ECB and Bank of England Press Conferences are the primary methods the pairs central banks to communicate with investors and the market regarding monetary policy. Most importantly they provide clues regarding future monetary policy which can lead to significant volatility within the pair as well as setting long-term trends.
Gross Domestic Product
Both the UK and The Euro Zone release three versions of GDP data per quarter, this data is released a month apart – Preliminary, Second Estimate, and Final. The Preliminary release is the earliest and thus tends to have the most impact on market conditions.
Retail Sales & Consumer Sentiment
UK Retail sales and the Uk’s Core Consumer Price Index have a primary role in this pair as consumer demand and prices account for a majority of overall GDP and inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.
German ZEW Economic Sentiment : It’s a leading indicator of economic health – investors and analysts are highly informed by virtue of their job, and changes in their sentiment can be an early signal of future economic activity.
Balance of Trade
Because the Euro Zone is made up of multiple nations it is the UK’s Current Account and Balance of Trade data that markets concentrate on along with equivalent German data. These figures are directly linked to currency demand – and as a result, a rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country which can lead to significant market activity and trend changes.