Important Influences on the EUR USD
The Eurozone is made up of 18 countries that have adopted the EUR as the single common currency. All these countries are not large enough to generate economic data on their own which could affect the currency’s value. The major countries in this zone are Germany, France, Spain and Italy, which are keenly watched by FX traders.
The monetary policy of the European Central Bank (ECB) influences the value of the Euro. The ECB’s main aim is price stability, which is defined by the value of the Harmonized Index of Consumer Prices (HICP) and tends to stay below 2%. The second aim is monetary growth, which is measured by M3, the reference value for which is 4.5% annual growth.
The ECB’s refinancing rate is the key short-term interest rate, passed by the bank to control inflation and money supply. The difference between this rate and the US Fed Funds Rate is considered a good indicator of the direction of the EURUSD.
Apart from this, the EURUSD is sometimes strongly impacted by the direction of cross currency rates, the non-dollar currency rates, such as EURJPY. The pair is also susceptible to political instability, such as a debt crisis in Italy and threat to coalition governments in France and Spain.