EUR/USD is an abbreviation for the euro or European Union currency against dollars. This pairing indicates how much USD one needs to buy one euro. For example, if the EUR/USD pairing is at 2.50 at a particular time, it implies one needs 2.5 USD to purchase 1 euro successfully.
But how did it become the most widely-traded pair across the globe? Let’s find out.
History of EUR/ USD pair
The US Dollar/ European Euro has been the most popular currency duo since the introduction and adoption of forex. While it is prevalent now, it wasn’t 20 years ago. The forex market status in the late 90s was vastly different from the present.
In those days, the German Deutschmark paired against the US Dollars was one of the dominant pairings. But, the currency exchange history changed on January 1, 1999, the Euro came into the scene, and things changed. The currency duo has since then been controlled and impacted by varying factors and fundamentals.
These fundamentals are the same factors that influenced Forex’s currency exchange history, regardless of whichever FX pair. But the major twins- factor that has influenced Forex’s history exchange rates are:
- How strong or weak is the basal economy is
- The CB instrumentality to control monetary supply; monetary policy.
As the timeframe closes in, prediction becomes easier to understand. Thus, the monetary policy expectation has a greater effect.
Recommended Pair to trade in Forex
A Forex pair is a currency trading in the foreign exchange market. The best Forex pair for beginners is typically considered to be the Euro vs US Dollar (EUR/USD). This pair is considered the most stable and has the
lowest spread, making it an excellent pair for new traders. It also has a high trading volume, providing more liquidity and making it easier for beginners to enter and exit trades. Additionally, the EUR/USD pair is less volatile than other currency pairs, making it less risky for beginners.
EUR/USD Best, Worst, and Base Case Scenarios for 2023
Several scenarios are possible when considering the factors that could affect the pair in 2023. They are;
Base case scenario
- Inflation may soften further in the first quarter of the year
- War in Ukraine continues but with Russia showing no sign of escalating it
- China doesn’t form strong ties with Russia,
- COVID-19 surge dies out, eliminating the fear of new strains and restrictions to curb the virus’s global spread.
- Base inflation enables the ECB and the Fed to look away from the gas in Q1
EUR/USD declines to $1.10, possibly moving to $1.13 on enhancing economic conditions in H2 2023.
Best case scenario
- Inflation crumbles on weak demand.
- Ukraine war ends, Russia lifts all supply restrictions, and things return to normal.
- Euro area returns to growth in H2 2023.
- China stays on the sidelines and focuses solely on expanding its economy, not Taiwan.
- The political environment stabilizes across the euro area, supported by improved employment conditions and lower inflation.
- New COVID-19 restrictions are less restrictive.
EUR/USD moves through the 2022 high of $1.14948 to target the $1.17 handle.
Worst case scenario
- Inflation pressure escalates
- COVID-19 strains are more virulent than the Delta strain, forcing governments to shut borders to control the spread of the virus
- The Ukraine war reached a new height when China and Russia allied.