More than $5.3 trillion is traded daily in foreign exchange market. That is around 53 times more than the total volume transacted daily in the New York Stock Exchange and around 4 times more than the Global GDP. Of this, 87% of total transactions are carried out with USD while Euro accounts for 33.4%. Together, these two currencies form the most popular pair in the forex market accounting to 24.1% of the total volume of traded pair.
Hence, before you invest in this highly volatile market and start trading with this popular pair, a preliminary EUR USD forecast is an absolute necessity.
“If you could get the courage to begin, you will have the courage to succeed.” - David Viscott.
What is an EUR USD forecast?
Going by the books, forecasting is a technique of determining the direction of future market movements developed by the use of historical or past data. Investors use various tools to determine the market behaviour and help them in decision making. Just like any other global financial market, forex is highly liquid, and a host of global issues affect market prices.
Similarly, as the name suggest, EUR USD forecast involves taking all the past data and movements into account and predicting future movements of this pair. Being the currency of two of the largest world economy, many situations affect this currency pair, and effective forecast is developed based on few well-defined indices and tools.
What all can affect the currency pair’s valuation?
Almost anything that affects the economy of the European Union and the United States. Be it 9/11 or year-long European Debt Crisis, every situation has an impact on currency valuation. Few can be listed below.
- Germany is the strongest among all on grounds of economy followed by France. Thanks to Germany’s wide range of exports, Euro enjoys a stable valuation. Hence, any effect on Germany’s economy will be reflected in the country’s valuation.
- Greece comes at number 17 in the list of 48 countries in EU. If Greece would have voted out of the Union, it would have definitely impacted Euro’s valuation.
- The United Kingdom is placed at number 3. Its decision of exiting EU on June 23, 2016, sent shockwaves throughout the global economy. This has already caused GBP to fall to its all-time low since 1985. Brexit also means that Britain will no longer contribute to EU’s annual budget. This will certainly have an impact on Euro’s valuation.
Forex EUR USD forecast takes into account all these and other similar global situations to formulate a forecast and future market behaviour of EUR/USD pair. A smart trader will make use of this turmoil and invest at the right time. Find out how you can do the same next.
Benefits of Forex forecasting to traders
Being the most traded pair in forex market, EUR/USD market quote suffers from sudden fluctuations, and proper investment will allow you to reap huge profits. You can benefit from forex EUR USD forecast in the following ways:
- Make timely purchase
Before making a purchase, you can scan through the forecast plot to decide if you are making the purchase at the peak stage or not. That is, if current valuation of EUR/USD is at 1.82 and the pair is not expected to rise in recent future, then your purchase is being made at the peak stage. It is better to wait for the market to fall again.
- Know how long to wait -
Proper forecasting will also help you decide how long to wait. Say the price has fallen to 1.68. Do you wait more or make the purchase now? This can be answered with EUR USD forecast. The curve will probably show that the market may rise to 1.79 and then steeply fall to 1.38 and continue to 1.11. Therefore, it is better to wait for the 1.11 mark than making the purchase at 1.68.
- Prevent too much loss -
Now, say, you already have Euros in your account, and market falls steeply to 1.11. You made your purchase at 1.38 against USD and incurred a huge loss. Question is, do you sell your Euros now or wait for the market to rise again? This can again be decided with the help of USD EUR forecast. If you see the market is set to hover around the 1.11 mark and rise again, then you should probably wait. But if the market is set to fall more to 1.05, then it is better to use stop loss.
- Make use of the falling market -
Also, EUR USD forecasting will help you to take advantage of the falling market. If your purchase is at 1.68 and the market falls to 1.38, you may sell the Euros at the present rate and wait for 1.11 mark. Buy more Euros at 1.11 and sell when valuation reaches 1.45 (say). This will help you to make up for the loss incurred initially.
Hence, proper and reliable EUR USD forecast will allow you to take advantage of every possible situation and make a profit at every stage. Predicting the future accurately and to be able to see it always helps, especially in the forex market.
“You only have to do very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffet.
How is EUR USD forecasting done?
Interpreting the ultimate result of forex forecasting requires a proper understanding of what are the tools and indices considered before while developing a forecast or prediction about EUR/USD pair. There are four popular methods currently in use that help in generating an accurate EUR USD forecast, or any other currency pair forecast.
- Purchasing Power Parity (PPP)
PPP is comparing the cost of similar goods in different countries on the basis of their prices. For instance, a pencil will cost same in the US as it will cost in Spain, after taking into consideration all the exchange rates and shipping charges. Now suppose, the price in the US is expected to rise by 4% and in Spain, it rises by 2%. Then, this results in an inflation difference of 2%.
PPP will take this into account and predict that USD would have to depreciate by nearly 2% to maintain the parity among similar commodities. In real life, instead of a pencil, the Bid Mac or a hamburger serves as the commodity to develop the comparison.
- Relative Economic Strength
This approach of EUR USD forecast takes into account the economic growth of different countries in order to predict the market behaviour. This index is based on the rational assumption that a fast economically developing country, or an already developed one, will attract more foreign investors into the country. This will create a demand for the country’s currency and raise its valuation.
Also, another deciding factor is interest rates. Strong economies allow low-interest rates. Also, few mid-ranged economies do the same in order to attract potential clients. This also increases the currency’s demand and valuation. Again, low-interest rates can also repel investors from that country considering them as a declining economy.
- Econometric models
This index takes into account various economic factors to develop an estimate of a currency pair’s future movements. These factors include GDP growth rate, income growth rate, recent international ties, and various others.
For instance, Germany’s GDP increased by 1.7% in 2015 and a similar rise is expected in 2016 as well. Also, Germany’s employment rate is set to increase over the next 3 years. This will have a positive effect on Euro, and its valuation is likely to increase against USD.
- Time Series Model
Time Series model is a purely technical approach to EUR USD forecast. It is not based on any economic theory or global analysis and is based on statistics. One of the popular time series tool put to use is Autoregressive Moving Average (ARMA) process. This takes into consideration years of historical data of Euro movement against USD and predicts future pattern.
It requires data to be put into a computer program, and software generates a future plot. At times, data can be as hundred years old and can be used to provide accurate future results. More data available, more the program’s efficiency and accuracy.
No future prediction can be accurate. It is expected that there will be some deviation between the predicted and actual market. However, forex EUR USD forecast serves as a guiding tool before investing in this particular pair.
Market forecasting is not always software or tool dependent. It also depends on the trader’s intuition and experience to analyse a given situation. It may so happen that EUR USD forecast is showing a fall from a market value of 1.38 to 1.11, but due to some recent event, the price rises to 1.50. Ultimately, all forecasting tools are software based, and sudden changes in the global scenario cannot be reflected instantaneously by a software.
Hence, a lookout as a trader is also important. Who wins US Presidential elections or where a civil war breaks out, everything counts when you are trading in forex. Accurate EUR USD forecast is priceless and may help you to gain huge profits in minimum time. Be informed and do your research. Happy investing!