Considering the importance, Euro (EUR) is inferior only to US dollar, and is the second most popular currency among traders. This currency plays a primary or secondary role in many countries. After euro was introduced, from the turnover went out such powerful European currencies as the German mark, French franc or Dutch guilder: 17 countries of the 27 EU members have created a Eurozone where Euro became the official currency. Now it is the official currency of 19 countries of 28 EU Member States.
Code: EUR
Sign: €
Banknotes: 5, 10, 20, 50, 100, 200, 500
Coins: cents – 1, 2, 5, 10, 20, 50, and also €1 and €2
Some countries kept their independent currencies, such as Great Britain, Sweden or Denmark. Switzerland remained outside the EU, and keeps its monetary sovereignty, using the Swiss franc (CHF). To become a member of the European Union, the states had to fulfill stringent requirements on financial criteria, including inflation level and budget deficit. In addition, European countries have transferred the powers in the joint monetary policy to the European Central Bank.
Today, the EU is a world leader in export and has the highest GDP.
On which economy relies euro?
The euro is based on the economy of the 19 countries participating in the EU and which use it as the official currency. In this vein, it is important to remember that the EU economy is not homogeneous: the economy of some countries is ahead of other economies.
For the Eurozone economy, the international trade is very important. The export in GDP has a very significant percentage, more than in Japan or the United States. At the same time, this is an industrial structure for which the service sector and manufacturing industry plays a major role. EU countries do not possess large volumes of raw materials, except Norway. For this reason, an important factor in the economy of the states in this World region is the prices of imported raw materials.
Generally, to monitor the economic performance of a particular country is difficult, yet the situation with euro is a bit different. There is no need to follow the news in all EU countries as 2/3 of the Eurozone GDP is produced by Germany, France and Italy. At the same time, you need to track the info from Eurostat (the EU statistical service). This is particularly true about data on trade balance, inflation, index of sentiment in the Eurozone, and GDP. Exploring similar reports from Germany and France will also be helpful.
What drives Euro?
EUR drivers are data on GDP growth, trade and payments balance, inflation, industrial output, and more. In addition, the important engines for the euro currency are the indicators of consumer confidence and business confidence in the Eurozone. Besides monitoring the economic condition of Germany, France and the EU as a whole, traders need to keep in mind that most of the EU countries have as major trade partners – countries outside the EU, some of which do not belong to the currency union. Thus, euro situation may be influenced by economic and political conditions in Russia, the UK and Switzerland.
Although the European Central Bank (ECB) dictates the monetary policy to EU member states, its control in tax policy is considerably weaker. The results of such disparities are demonstrated by debt crises. For example, Spain, Portugal and Greece had the opportunity to take out loans on favorable terms, with lower interest rates, and these states went to unnecessary spending, the financing of which was due to the received loans. Thus, in various countries of the EU, the economic conditions may be quite different.
Obviously the euro price has a direct relationship to how healthy is the Eurozone itself. Nevertheless, traders should remember that, in part, euro maintains its value and popularity due to the fact that it represents an alternative to the US dollar. As soon as USD is weaker, EUR goes up. But in a climate of uncertainty, the traders’ preference continues to remain on dollar side as a safer currency. The reason is the sovereignty of the EU member states, which makes their crisis reaction more complex.
EURO factors
Behind the euro, there is the European Central Bank, managing the monetary policy in the Eurozone countries. The European Central Bank is unique with the fact that it is developing a common monetary policy for all EU countries, which would suit every country, regardless of economic conditions.
This process is not only complicated in practical terms, but also because of psychological factors. For example, the German people are more sensitive to inflation than people in Italy. For this reason, the countries are constantly arguing about the two positions: on the one hand, there is promoted a conservative policy designed to reduce inflation to a minimum, on the other: an approach aimed at economic growth.
Will Euro become a final alternative to the US dollar?
When the euro was introduced into circulation, many had hoped that it would become the world's leading currency, replacing the dollar. Such an effect is still possible, as the Eurozone is the world's leading economic power. However, the weak points of the currency were once again highlighted as a result of uncertainty and debt crisis in some European countries.
Conclusion
Currency rates are difficult to predict. Most Forex strategies are designed for small timeframes. The short-term Forex traders rarely benefit from predictions based on economy, but long-term trends are set particularly by economic conditions.
The single currency of the EU, even before 2000s and crisis situations, was gaining momentum. The question of EUR survival appeared only after debt crisis of some EU countries. Later it turned out that some states were purposely hiding internal problems to have opened the way into the currency union. For this reason, these countries could not use the EU benefits in a responsible regime. At the same time, other economies could get hit by having to pay for financial aid. This gave rise in the EU of inclinations towards disintegration.
Hardly the euro will collapse, but traders should be prepared for the fact that the market will start agitations, and individual states will leave the European Union. Euro will increase its influence if the EU will conduct resolute reforms of uncompromising nature with respect to its structure and cut off the weak points. Then the single currency the EU has the potential to become an alternative to the dollar as a global reserve currency.