intro – eur:
EUR or Euro is the currency of member states of the European union(EU). The EU countries where EUR is the legal tender are collectively referred to as Eurozone. As of 2020, the EUR is the second most traded currency in the world. EUR is also the second largest global reserve currency.
In addition to Eurozone members, Montenegro and Kosovo also use the EUR. And, the British Overseas Territory of Akrotiri and Dhekelia have EUR as their currency. Outside Europe, a number of special territories of EU member states use EUR as their currency. Moreover, a number of countries use domestic currencies pegged to the EUR.
Compared to most world currencies, EUR is a young currency. It started it’s life in electronic form in 1999, and in cash form in 2002. EUR has one of the highest combined values of banknotes and coins in circulation in the world. The ECB, or the European Central Bank, is the governing body that supervises the EUR monetary policy. The ECB works with the Eurosystem, which is a conglomerate of EU member states central banks. It supervises the printing, minting, and distribution of the EUR notes and coins.
Due to it’s status as second choice reserve currency, EUR has been used as a trading currency in Cuba. This was because American sanctions restricted flow of USD. Similarly, Iran has also converted all it’s USD denominated assets into EUR. Finally, in partially or fully dollarized countries, large transactions(for eg. property purchase) are carried out in EUR. This is because EUR notes come in higher denominations than USD.
The concept of a common European currency like EUR, dates back centuries. In 1865, France, Belgium, Italy and Switzerland formed the Latin Monetary Union. They agreed to a combined gold and silver standard with a gold-to-silver ratio of 15.5 to 1. One LMU represented 4.5 grams of fine silver or 0.290322 gram of fine gold. The treaty required that all four states strike freely exchangeable gold and silver coins according to common specifications.
Greece joined LMU in 1867. Spain and Romania did not officially join LMU, but adhered to the LMU standard anyway. Austria-Hungary decided to follow LMU standard for Gold coins only. In addition, the coins were also used in European colonies. However, the LMU standard formally ended in 1927. There were many reasons for this. However, the key problem was Bimetallism, which gives way to arbitrage.
In early 20th century, silver devalued against gold. Following the outbreak of the first world war, gold standard collapsed across the monetary union. France and Italy financed war effort with paper notes backed by LMU gold coins. However, some of this cost was naturally borne by other member states in the currency union. Greece, responded by decreasing the amount of gold in their coins. In addition, people were melting silver into LMU coins to exchange for gold coins at the mint.
EEC or European Economic Community was formed in 1958. It’s goal was to create common market and customs union. It’s founding members were Belgium, France, Italy, Luxembourg, the Netherlands and West Germany.
The European Unit of Account (EUA) was a unit of account used in European countries from 1975 to 1979. It’s value was equal to 1 USD. After the collapse of the Bretton Woods system, EEC redefined the EUA as a basket of European currencies. Thereby, European Currency Unit (ECU) replaced the European Unit of Account(EUA) at parity in 1979. Although, ECU was not a circulating currency, it was used to price some international financial transactions. However, It never replaced the member states currencies.
The ECU was a precursor to a common currency. EU member states then created European Exchange Rate Mechanism to minimize fluctuations between member state currencies. It managed the variance of each currency against its respective ECU reference rate. It’s final goal was to achieve fixed ratios to enable the single currency. Thereafter, Eurozone member states agreed the single currency proposal, as per the provisions in the 1992 Maastricht Treaty.
The global fx markets in the 20th century were very different than today(2020). For instance, the GermanDeutschmark-USDollar was one of the big pairs, along with the FrenchFranc-USDollar.
On 1 January 1999, the EUR came into existence. The value of EUR was tied to the ratio of the constituent Eurozone currencies in the ECU basket. For instance, German Deutschmark, the French Franc, the Spanish Peseta, the Italian Lira, etc. were the constituents. It became a real world cash based currency in 2002. The original EUR USD exchange rate was 1.1686.
Since it’s inception in 1999, the EUR is now a major player in global markets. The U.S. goods and services trade with the EU totalled nearly USD1.3 trillion in 2018. Exports totalled USD575 billion; Imports totalled USD684 billion. The U.S. goods and services trade deficit with the EU was USD109 billion in 2018.
In Summary, this leads to a significant amount of EUR and USD exchanging hands. And this makes the EUR USD the largest and most actively traded market in the world.
It is important to spend some time learning the history and basics. This time spent will yield dividends when you are trying to predict movement of an asset. Also remember that you are more rational before you place a trade. So, it’s important to set some rules. If you like market conditions and they fit what your rules suggest, go for it. If the conditions for the rules don’t fit what you see in the markets, don’t trade for it’s own sake. You don’t have to trade every day. The point of having rules is to run them to your favour, and not let them run you.
Day trading follows the same rules we use for life. Successful trading is the art of using knowledge and skills at the right time. It is also essential to set some limits once you open a position. For example, you may impose a limit on yourself to not keep a trade open for more than 20 days. Finally get access to good tools that can help you achieve your trading goals. It’s best to try out a lot of things on paper money accounts before risking your capital.
Despite of all the rules, limits and right mindset, random events will happen. So always have a contingency plan. A perfect system or rules don’t exist. And, this is a good thing. Otherwise, someone will work it out and own half of the free world. All algorithms, tools, systems and rules are based on a snapshot of data. So always pay attention to news and data on a given day.
how to apply this to trading
STOKAI provides daily fx markets prediction. We use algorithms based on all factors that impact the price of given fx pair. Then, it evolves this over 10 days in the future. Tutorial and brief user guide is available here – Tutorial. If there are any questions, please contact us.
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