European and US trading session overlap
Foreign exchange markets are open 24 hours a day, five days a week. You can even trade EUR/USD almost 24 hours a day, seven days a week using our weekend EUR/USD. However, the most popular times to trade EUR/USD (or any currency pair) is when it is most active – when the highest volume and number of transactions are taking place. When there is more volume, there is increased liquidity and higher volatility. These create larger moves in the price of EUR/USD and more trading opportunities.
Major FX pairs trade 24 hours, Monday to Friday. EUR/USD is open/active from 5am Monday all the way through until 6am Saturday Japan time. However, it is the most active when the European and US trading sessions overlap between 9pm and 12am Japan time. While volatility changes over time, the most volatile hours do not change too much. This means that the common time to trade the EUR/USD pair is in this 9pm to 12am Japan time window.¹
Economic data releases and central bank announcements in both the Eurozone and the United States impact the EUR/USD currency rate because they can generate increased volumes in trading. For the US, its main economic data releases are announced between 9pm and 12am Japan time, but there is an important exception. The Federal Reserve's announcement on interest rates is released at 3am Japan time, and this event typically creates an increase in volatility and trading activity.
Factors affecting the EUR/USD exchange rate
The EUR/USD exchange rate, like all foreign exchange trading, is impacted by macroeconomic, geopolitical and central bank factors.
Economic data
Economic data releases can impact the price of the EUR/USD currency pair, as they indicate potential strengths or weaknesses in the underlying economy. A strengthening economy usually leads to a higher currency, as it may influence growth or interest rate expectations. Inflation, balance of payments, employment and GDP are some of the important data releases. The Eurozone includes countries like Germany, France, Spain and Italy. Each country releases their economic data separately, so there are a large number of data points that need to be monitored.
Political events
Geopolitical events can impact the EUR/USD exchange rate. For example, when Russia invaded Ukraine, Europe was heavily reliant on Russian gas as a source of energy. The increased cost of power and energy across Europe, along with a growing concern that factories in Germany may be forced to shutter operations over the winter, led to a sharp sell-off in the EUR/USD rate because the US economy was less reliant on Russia for its energy supplies.
Elections and government policy decisions can have a large impact too. After an election, a new leader may implement an election manifesto that alters the outlook for the economy. For example, it could involve large public spending plans that require large-scale deficit financing or a sharp increase in taxation. Any policy that changes the outlook for growth can have a material impact on the level of its currency.
Central bank announcements
Decisions made by the two central banks – the Federal Reserve (Fed) and European Central Bank (ECB) – on interest rates and their accompanying statements are important drivers of the EUR/USD exchange rate, with interest rates being one of the most important influencers.
There is usually increased volume and volatility in the price of the EUR/USD exchange rate when the Fed or ECB announces an interest rate decision. A higher interest rate can attract more foreign capital to that currency, as it offers a higher return. The opposite is also true – a lower interest rate tends to see a decrease in the exchange rate.
Risk management strategies
It is important to carefully manage your risk when trading forex.
Research
You need to ensure that you build up knowledge about the factors that impact the EUR/USD exchange rate, including potential catalysts and upcoming events and data releases. You can use the IG Academy to help improve your understanding of trading and consult our economic calendar for upcoming data releases.
Size
You need to be aware of the impact of leverage on your profits and losses. Your total risk is not limited to your initial outlay, and gains and losses will be based on the full trade value. Correctly sizing your position should ensure that any losses sustained are manageable.
Exit points
Managing your risk should include choosing your exit points. You can use stop and limit orders to set specific levels to enter and exit positions. Stops can limit your potential losses and protect your profits. Following a disciplined trading plan can help reduce emotion in decision-making.
How do I start trading EUR/USD?
With us, you can trade EUR/USD using contracts for differences (CFDs) by following these steps:
- Open a trading account or practise with a free demo account
- Select the EUR/USD currency pair
- Decide whether to sell or buy and manage your risk
- Open and monitor your position
Research and education
- Many individuals prefer trading forex forwards because it enables them to take positions over the longer term without paying overnight funding costs.
- When trading CFDs as you don't own the underlying asset, but you're taking a position on its price movement. Your currency exposure and initial margin will vary according to the contract of the asset chosen.
Remember, trading with CFDs comes with added complexity and risk attached to leverage. Your position will be opened at a percentage of the underlying market – but you can gain or lose money much faster than you might expect. You could even lose more than the initial margin that you paid, and your potential profits and losses are magnified.
Popular times to trade EUR/USD summed-up
- The most popular time to trade EUR/USD typically is between 9pm and 12am (Japan time) when the European and US trading sessions overlap. This is because EUR/USD typically trades with the highest liquidity and volatility during that time, creating the most trading opportunities
- Economic data releases, geopolitical events and central bank announcements may all impact the transaction volume and volatility in the EUR/USD exchange rate
- Carefully managing your risk is key when trading EUR/USD as you are using leverage
¹ Best Time to Day Trade the EUR/USD Forex Pair – Balance Money
