EUR/USD

Forex traders often use market jargon to request prices and discuss ideas in a shortened form. One very important such term is EUR/USD which is generally spoken “Euro Dollar” among forex traders using English to communicate. This shorthand phrase uses the standard ISO 4217 codes to refer to the foreign exchange rate of the European Union’s Euro versus that of the United States’ Dollar.

The EUR/USD Currency Pair

In the EUR/USD currency pair, the Euro or EUR is the base currency and so appears first, while the U.S. Dollar or USD is the counter-currency and is written second after the slash symbol. Among forex traders, this common market shorthand generally refers to how many U.S. Dollars are equivalent to one Euro.

With respect to pip values, this standard forex market notation implies that pips in EUR/USD are expressed in U.S. Dollar terms. Hence, if the EUR/USD rate is currently trading at a rate of 1.3500, then each pip is worth 0.0001 U.S. Dollars per Euro. On a 1 million Euro transaction, this single pip value would amount to 100 Dollars.

Spreads in the EUR/USD currency pair can depend on transaction volume and dealing status, but spreads of anywhere from 1 to 5 pips are fairly common in practice. Although the market in EUR/USD is highly-liquid, spreads can widen during major news events and important economic data releases.

EUR/USD is perhaps the most highly-traded currency pair in the forex market, ranking at the top of the so-called “majors” and accounting for an estimated 27% of forex trading volume worldwide. The primary interbank electronic trading venue for EUR/USD is EBS or Electronic Broking Services that was created by a group of the biggest global forex market-making banks.

The Euro

The Euro has the code EUR and the symbol “€” and is the European Union’s official currency that was officially adopted in December of 1995, although trading did not commence until the beginning of 1999 when it replaced the ECU at parity. Euro currency did not come into circulation until the beginning of 2002, and it now ranks as the world’s second most popular reserve currency after the U.S. Dollar.

Furthermore, the Euro is used in five more European countries. Also, some countries on other continents, especially in Africa, peg their currencies to the Euro. Overall, this has resulted in about half a billion people either using the Euro or using currencies with exchange rates pegged to it.

The U.S. Dollar

The United States Dollar has the code USD and the symbol “$”, and it is the official currency of the United States of America. In the foreign exchange market, the currency is commonly referred to as the “Dollar”, “Buck” or “Greenback”.

In terms of popularity, the U.S. dollar is the most-used currency worldwide in terms of international trade and foreign exchange, and ranks as the world’s top reserve currency. In addition to the United States, several other countries use the U.S. Dollar as official currency, while in others the Dollar is widely-accepted as currency in private and commercial transactions.

The U.S. Dollar is further divided into coin denominations of 100 cents or pennies, 20 nickels, 10 dimes and 4 quarters. U.S. Dollar banknotes are issued by the Federal Reserve Bank after being printed by the Bureau of Engraving and Printing. The United States’ Mint produces the coins used in the United States.