EUR/USD pares some of Monday’s losses and tests the 50-day moving average (DMA) to the upside on Tuesday during the North American session. At 1.0709, the EUR/USD exchanges hands on top of the previously-mentioned DMA at the time of writing.
US equities are trading with gains as Wall Street’s closing looms, reflecting Investors’ positive mood. Market players’ worries about elevated prices and the Federal Reserve’s tightening conditions eased. Consequently, US Treasury yields fell, underpinning the greenback, a tailwind for the EUR/USD.
The US 10-year Treasury yield pares Monday’s gains and loses six basis points, down at 2.981%. In the meantime, the US Dollar Index, a measure of the buck’s value, grinds lower some 0.10%, sitting at 102.302.
Data-wise, the Eurozone economic docket featured the S&P Global Construction PMI for the fourth largest economies in the block, alongside the Euro area figures. The readings were mixed, though they failed to trigger a reaction in the pair. Later in the week, the European Central Bank (ECB) monetary policy lurks. The ECB President Lagarde & Co. are expected to hold rates unchanged, though market players await forward guidance regarding the APP and signals that the bank would shift policy to normal.
Meanwhile, 10-year bond yield spreads across the Euro area began to widen. Greece and Italy spread have hit the 3.87% and 3.42% threshold, respectively,
The US economic docket featured the Trade Balance, which helped ease the deficit, narrowing the most in almost nine and half years in April, as exports bounced to a record high of $252.6 billion vs. March’s $244.1 billion.
Ahead of the week, Initial Jobless Claims, inflation figures, and Consumer confidence would give GBP/USD traders the current status of the US economy.
The EUR/USD has a downward bias, despite the major’s correcting from YTD lows around 1.0300s to 1.0780s. Also, EUR/USD traders pushed the pair near the 50-day moving average (DMA) at 1.0705, though a daily close below would exacerbate a move towards the June 1 swing low at 1.0627, as the first target.
The daily moving averages (DMAs) above the spot price have a downward slope. The Relative Strenght Index (RSI), albeit at bullish territory at 53, aims lower, meaning that selling pressure begins to mount in the pair.
The EUR/USD first support would be 1.0700. Break below would expose the June 1 low at 1.0627, followed by the May 20 daily low at 1.0532, and the May 19 low at 1.0460.
The USD/JPY currency pair has traditionally had a close correlation with U.S. Treasuries. When interest rates head higher, Treasury bond prices go down, which lifts the U.S. dollar, strengthening USD/JPY prices.
A foreign exchange correlation is the connection between two currency pairs. There is a positive correlation when two pairs move in the same direction, a negative correlation when they move in opposite directions, and no correlation if the pairs move randomly with no detectable relationship.
You can trade on forex pair correlations by identifying which currency pairs have a positive or negative correlation to each other. In the conventional sense, you would open two of the same positions if the correlation was positive, or two opposing positions if the correlation was negative.
A good rule of thumb for traders new to the market is to focus on one or two currency pairs. Generally, traders will choose to trade the EUR/USD or USD/JPY because there is so much information and resources available about the underlying economies. Not surprisingly, these two pairs make up much of global daily volume.
The major currency pairs on the forex market are the EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The four major currency pairs are some of the most actively traded pairs in the world, along with the so-called commodity currency pairs: USD/CAD, AUD/USD, and NZD/USD.
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The EUR/USD pair has become the most widely-traded pair in the world because it represents a combination of two of the biggest economies in the world.
It 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. Along the same lines, bad news from the EU economy has an adverse effect on prices for the EUR/USD pair. News of the government debt crisis and immigrant influx in Italy and Greece resulted in a euro selloff, prompting the pair’s exchange rate to plunge.
In the Forex market, gold is a form of currency. The internationally accepted code for gold is XAU which is a symbol used under the ISO 4217 currency standard to denote one troy ounce of gold. It is known to be a “safe-haven” asset, expected to increase its value in times of volatility and economic uncertainty.