Guide to trade EUR/USD

EUR/USD price forecast and technical analysis

USD/EUR price forecast based on technical analysis DAY / WEEK / MONTH

Economic Overview for European Union

The EU was developed as an institutional framework to economically and politically unite the nations of Europe. The idea of a union of European nations was originally proposed in the 1950s; however, it wasn't until 1992 when the Treaty of Maastricht was accepted. This treaty laid the framework for the integration of foreign and defense policy, judicial and internal affairs, and the economic and monetary union that integrated a common currency, the euro. The final stage of the European Monetary Union (EMU) and the euro were launched Jan. 1, 1999, and most EU countries have either adopted or are planning full adoption of the euro as a common currency.

Currently, 19 of the 27 EU member countries have joined the EMU, and use the euro as currency. These countries include Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, The Netherlands, Slovakia, Austria, Portugal, Finland.... Cyprus, Denmark, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia, Sweden are members of the EU, but have not adopted the euro.

The internal goals the EU are to lower trade barriers, adopt a common currency and create common living standards among all member countries. The international goals are to strengthen the EU's trade, political and economic positions.troleum from known reservoirs, Canada has the second most in the world, behind Saudi Arabia.

European Union economy

The European Union's overall economy is the second largest, after the U.S., with GDP valued at US$12.18trl, constituting almost 21 percent of the world's total gross product. Although the average per capita income in the EU is $28,100, this varies greatly by country, ranging from $10,000 to $30,000. This income disparity has led to difficulties in the acceptance and implementation of common EU policies, and a few countries have gone against the member treaty to prevent national budget deficits. Other difficulties the EU has faced include opposition to continuing southern and eastern expansion and to the Treaty Establishing a Constitution for Europe (TCE), which, to date, has only been ratified by 13 of the member countries.

The EU has the third largest labor force in the world, which is about a quarter of the size of China's labor force. The economy is highly dependent on service, with 67 percent of the GDP derived from the service sector. As one of the world's most technologically advanced industrial economies, industry contributes about 27 percent to the GDP.

The EU is the largest exporter of goods and services, with $1.318trl in annual exports from member countries to the rest of the word. Machinery, motor vehicles, aircrafts, plastics and pharmaceuticals are the most commonly exported products. The U.S. is the most important trade partner for the EU, importing 24 percent of the European Union's goods and services. The trade deficit of the EU is $84bln. One of the reasons for the formation of the EU was to give the member countries international negotiating power, allowing the EU to exercise significant clout in international trade while attempting to level the bargaining field among other countries.

The EMU has highly developed fixed income, equity and futures markets, making it one of the most appealing investment markets for domestic and international investors.

The role of the euro as a reserve currency is largely based on the EU's role in international trade. Most countries keep large amounts of reserve currencies to reduce exchange risk and transaction costs. Before the euro was established, it was difficult for countries to keep large amounts of each individual EU national currency, so currency reserves were usually held in USD. With the introduction of the euro, the trend is shifting in favor of holding it as the reserve currency, and this trend is expected to continue as the EU leverages its trading power.

European Central Bank (ECB)

The European Central Bank (ECB) was established as the central bank for the EMU countries, with the goals of maintaining the purchasing power of the euro and price stability within the EMU. The responsibilities of the European Central Bank include implementing monetary policy, conducting foreign exchange operations and managing foreign reserves. The ECB's governing council is the decision-making body, consisting of a six-member executive board and leaders of all the central banks from the EMU member countries. The governing council meets twice a month to discuss monetary policy. At the first meeting of the month, they assess monetary and economic developments and make monetary policy decisions.

The ECB uses open market operations to influence interest rates and manage market liquidity. This is done through outright transactions, reverse transactions, issuance of debt certificates, foreign exchange swaps and collection of long-term deposits. These operations can be executed through standard tenders, quick tenders or bilateral procedures.

Standing facilities are used to control overnight liquidity and bind overnight interest rates. Counterparties can use the marginal lending facility to obtain overnight liquidity from the national central banks against eligible assets. The interest rate provided by the marginal lending facility typically provides the ceiling for the overnight market interest rate. Counterparties can also use the deposit facility to make overnight deposits with the national central banks. The interest rate provided by the deposit facility typically provides a floor for the overnight market interest rate.

Minimum reserves are applied to banks in the EMU to set money market interest rates and reduce liquidity. The minimum reserve rate lets banks make use of averaging provisions to meet the goal of stabilizing interest rates.

A minimum bid rate is set as the interest rate that the ECB offers to the central banks of its member states. Rate changes are announced at the biweekly governing council meetings, and are watched closely for the impact on the euro.