Loading the player...

What is the 'Currency Pair: EUR/USD (Euro/U.S. Dollar) '

The Currency Pair EUR/USD is the shortened term for the euro and U.S. dollar pair or cross for the currencies of the European Union (EU) and the United States (USD). The currency pair indicates how many U.S. dollars (the quote currency) are needed to purchase one euro (the base currency). Trading the EUR/USD currency pair is also known as trading the "euro." The value of the EUR/USD pair is quoted as 1 euro per x U.S. dollars. For example, if the pair is trading at 1.50, it means it takes 1.5 U.S. dollars to buy 1 euro.

BREAKING DOWN 'Currency Pair: EUR/USD (Euro/U.S. Dollar) '

The EUR/USD is affected by factors that influence the value of the euro and/or the U.S. dollar in relation to each other and to other currencies. For this reason, the interest rate differential between the European Central Bank (ECB) and the Federal Reserve (Fed) affects the value of these currencies when compared to each other. For example, when the Fed intervenes in open market activities to make the U.S. dollar stronger, the value of the EUR/USD cross could decline due to a strengthening of the U.S. dollar compared to the euro.

Brief History of the Euro Currency

The euro currency originated on 1992 as a result of the Maastricht Treaty. It was originally introduced as an accounting currency in 1999. On Jan. 1, 2002, the euro currency began circulating, and over the course of several years, it became the accepted currency of the European Union and ultimately replaced the currencies of many of its members. Consequently, the euro integrates and represents a large number of European economies. This serves to stabilize currency exchange rates and volatility for all members of the European Union. It also makes the euro one of the most heavily traded currencies in the forex market, second only to the U.S. dollar.

As of March 26, 2018, 19 of the 28 member countries of the European Union use the euro. According to the ECB, as of January 1, 2017, more than €1 trillion are in circulation in the world. 

Reading a EUR/USD Price Chart

Unlike a price chart for a stock in which the indicated price directly represents a price for the stock, the price listed on a price chart for a currency pair represents the exchange rate of the two currencies. Therefore, the directional indication of a chart corresponds to the base currency. Using the earlier example, when a trader takes a long position in the EUR/USD currency at 1.50, as the rate increases to 1.70, the euro increases in strength (as indicated in the price chart) and the U.S. dollar weakens. Now it takes $1.70 (more dollars) to purchase the same euro, making the dollar weaker and/or the euro stronger.

However, it is important to understand that the base currency of the pair is fixed and always represents one unit. Thus, the source of the strengthening and/or weakening is not reflected in the rate. The EUR/USD rate can increase because the euro is getting stronger or the U.S. dollar is getting weaker. Either condition results in an upward movement in the rate (price) and a corresponding upward movement in a price chart.

RELATED TERMS
  1. Currency Pairs

    Currency Pairs are two currencies with exchange rates that are ...
  2. Open Position Ratio

    The open position ratio is the percentage of open positions held ...
  3. Currency Appreciation

    An increase in the value of one currency in terms of another. ...
  4. GBP/USD (British Pound/U.S. Dollar) ...

    The abbreviation for the British pound and U.S. dollar (GBP/USD) ...
  5. Euro

    The euro is the official currency of 19 members of the European ...
  6. Conversion Rate

    Showing the relative value between two currencies as a ratio, ...
Related Articles
  1. Trading

    Why the Euro Failed to Become the World's Reserve Currency

    Examine the current state of the U.S. dollar as the world's reserve currency; learn the major reasons why the euro has failed to replace it in that capacity.
  2. Trading

    6 Top-Traded Currencies and Why They're So Popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  3. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  4. Trading

    Popular Forex Currencies

    Learn about the most traded currencies and the strategies used to trade them.
  5. Investing

    Making Sense Of The EUR/CHF Relationship

    The strong correlation between EUR and CHF currency pairs is undeniable. Find out what it means for forex traders.
  6. Investing

    Buying Euros as a Long-Term Investment: Risks and Rewards

    Learn about the potential risks and rewards of long term investing in the euro and the current status of the European Union's financial markets.
  7. Trading

    Top 5 Hardest-Hit Currencies

    The value of a country's currency is dependent on many factors that will cause it to fluctuate, relative to other world currencies.
RELATED FAQS
  1. How do you make money trading money?

    Trading money, particularly in the forex market, is a speculative risk, as you are betting that the value of a currency will ... Read Answer >>
  2. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  3. In forex, what are the commodity pairs?

    In forex, the commodity pairs consist of the heavily-traded currency pairs and contain the Canadian, Australian and New Zealand ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center