Forex Walkthrough

Level 5 Economics - European Euro

European Euro (EUR)
Central Bank: European Central Bank (ECB)
Current Interest Rate: Link here

The Dollar's Nemesis
Frankfurt, Germany, is where you will find the central bank of the 16 member nations of the Eurozone, the European Central Bank. Similar to the United States' FOMC, the ECB has a primary body that is responsible for making monetary policy decisions: the Executive Council. The council is composed of five members and headed by a president. The remaining policy heads are chosen on the basis that four of the seats are earmarked for the four largest economies in the system, which include Germany, France, Italy and Spain. This policy is in place to ensure that the largest economies in the Eurozone are always represented in the case of a change in administration. The council meets approximately 10 times a year. (Read more about this and other central banks discussed here in Get To Know The Major Central Banks.)

Along with having control over monetary policy, the ECB also holds the right to issue banknotes as it sees fit. Similar to the Federal Reserve, policymakers can interject at times of bank or system failures, much like the global financial crisis of 2008-2009.The ECB differs from the Fed in one very important area: rather than focusing on maximizing employment and maintaining stability of long-term interest rates, the ECB works toward a prime principle of price stability, giving general economic policies second billing. As a result, policymakers will often focus a great deal on consumer inflation in making key interest rate decisions. (Read more about how central banks control inflation in What Are Central Banks?)

Although the monetary body may seem quite complex, the currency is not. When paired with the U.S. dollar, the euro (EUR) tends to be a slower currency compared to its colleagues (i.e., the British pound or Australian dollar). On an average trading day, the base currency can trade between 30-40 pips, with the more volatile swings coming in at 60 pips wide per day. Another very important trading consideration is time. Trading in the euro-based pairs can be seen during the London and U.S. sessions (which occur from 3am through 12pm EST). (Read more about choosing the optimal time to trade in How To Set A Forex Trading Schedule.)


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