The euro-dollar is a unique financial instrument and it is known all over the world. Despite the fact that the euro appeared not so long ago, these two currencies still represent the strongest economies in the world, so it is not surprising that the entire market revolves around them. If you are a trader, then knowing the numerous unique characteristics of this currency pair is the most important thing for you.
Currency transactions related to this currency pair occupy almost half of the market and that is why the ability to analyze the main trends of the euro against the US dollar based on the EUR USD chart will never be superfluous for you.
What is the euro/dollar currency pair?
As you may know, in the foreign exchange market (or Forex), the value of a currency is always displayed in comparison with the value of another currency (known as the counterparty currency). The EUR/USD pair represents the value of the euro relative to the value of the US dollar, thus combining in one pair the two most important currencies in the world in terms of transaction volume.
It is important to understand that the value of currencies constantly reacts to any changes, such as, for example, different economic factors of a country or geographical region. You should not be afraid of this, but rather use it as a tool, because then we conclude that they can be compared with what a country’s shares can be on the stock market. Namely, GDP, unemployment, capital flows, and key interest rates are all factors that will influence the evolution of the value of the currency, and you only need to look at them in time.
Historical summary
As you know, the euro was put into circulation in January 2002, and it was on this day that the euro-dollar pair appeared. It is interesting to know that some trading platforms allow you to display historical EUR/USD prices with data dating back several decades before the date of the creation of the euro, artificially recreating the evolution of the euro in the 1980s and 1990s based on the evolution of the national currencies of countries now in the euro area.
Although the value of the euro was lower than the US dollar in 2002 at the time of its creation (0.91 US dollars per 1 euro), by the end of the first year after its creation, the value of the euro quickly became higher than the value of one US dollar.
Since that date, the prices of the euro against the US dollar have only fallen in successive cycles in 2008, 2010, 2012, 2014, 2018, and finally in 2021. In 2022, we were even able to trace a return to parity (1 euro for 1 US dollar).
The positive and negative effects of a strong and weak euro
Indeed, the economic impact of the value of the euro can be significant, it can cause inflation, have consequences for the luxury and tourism sectors, and potentially have consequences for capital flows and investments in Europe.
The advantages of a strong euro
When the euro is strong, that is, the value of the euro is higher than the value of other foreign currencies (as it was in 2008, when the EUR/USD pair was trading at 1.60), then imports into the eurozone decrease. This may mean that the purchasing power of Europeans around the world has become higher. Oil, gas, industrial, and agricultural raw materials, as well as consumer goods produced abroad (for example, in China), are cheaper for European consumers and enterprises. Thus, a strong euro has a positive impact on imports and purchasing power.
The advantages of a weak euro
When the euro is weak, the opposite happens. An economy heavily dependent on imports will suffer, and purchasing power will suffer greatly, while large industrial companies will be able to become more competitive in the international arena.
Euro at face value with dollar: advantages and disadvantages
Those who will benefit from the euro at parity with the US dollar are activities related to the tourism sector, as there may be an influx of foreign tourists choosing a destination in Europe to take advantage of a competitive exchange rate. Large groups of companies such as Airbus, LVMH, and Kering should also benefit from the weakening of the euro.
The most significant impact of the euro exchange rate on the historical minimum is felt, first of all, on oil and gas prices, a price that will certainly reduce the profits of industrial exporters, as well as have a harmful effect on the purchasing power of European consumers.
Conclusion
The euro-dollar currency is the most influential pair nowadays. Every trader needs to understand its unique characteristics and have the ability to analyze its trends using the EUR USD chart. Nevertheless, mastering the analysis of the euro-dollar relationship can provide significant strategic advantages in trading.