Forex Trading and the Euro

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Total views: 250 | Word Count: 707 | Date: Thu, 3 Jun 2010 | 134 comments

Money is a complicated subject, that's why forex and currency trading is so difficult to master. The currency system of our own nation is hard enough to comprehend, especially since the end of the gold standard. Now countries can print as much of their own currency as they want - the inherent dangers being inflation and deflation. For most of the world, the U.S. dollar is the standard that all other currencies are based on, making actual paper dollars quite a commodity. Now, take into consideration that we print or withhold currency as the administration dictates and you can start to see how currency trading works.

What is a Euro?

Euros are the standard currency unit of the European Union, or Eurozone, and are a favorite among currency traders. The Eurozone is an economic and monetary union of 16 European countries: Austria, Belgium, Cypress, Finland, France, Germany, Greece, Italy, Ireland, Luxemburg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Eight other countries are obligated to join once they meet certain economic criteria. Member countries mint Euros as their currency, making trade between the member nations easier.

Stability and Growth Pact

The Eurozone and the Euro came about due to the SGP or Stability and Growth Pact. The SGP was initially spearheaded by former German Finance Minister, Theo Waigel, in the mid 90s. Germany's low-inflation policy had been credited with the countries strong economic performance and the same was hoped for the entire European market. The SGP is an agreement between the 16 official members of the EU (eight other countries are lined up for membership and several others use the Euro, but are not members of the European Central Bank). The intent was to stabilize and to maintain the economy of the Eurozone through fiscal discipline. This goal was to be achieved by 1) fiscal monitoring by the European Commission, the executive body of the EU which operates as a cabinet government; and 2) Sanctions, which are only used after several warnings.

Who Gets In?

Nations that want to become part of the European Union must meet certain criteria. These are laid out in the "Maastricht Convergence Criteria," a set of guidelines modeled from Article 121(1) of the European Community Treaty. The four pillars of the Maastricht Convergence Criteria are as follows: No more than 1.5 percent inflation over the baseline; annual government deficit can't be more than 3 percent of GDP; and total government debt not more than 60 percent; must be part of the Exchange Rate Mechanism of the European Monetary System; and long term interest rates can't be more than 2 percent above baseline.

EU and Monetary Policy

Even though there are administrative and regulatory arms of the European Union, there is little in the way of actual fiscal policy. Fiscal policy is the government's use of revenue, expenditure and interest to influence the economy. There is cooperation between member states. The "Euro Group" consists of the finance ministers of the member countries. Presumably they have political control over the euro, but, in practice, each country acts individually.

How to Stay Current with the EURO

Keeping track of the ins and outs of the EU is a mind-numbing task. That's why it's so important to have a good news source for your forex analysis. Websites such as ForexEgg.com are great sources. This valuable website provides prime information, directly from the source. On the site you will find links to all the central banks of the world, not just the European Central Bank. There is also streaming headlines from around the globe, in real time, and up-to-the minute quote data for all the major currency pairs.

For more information visit: http://forexegg.com

About the Author

Tommy Hughes is a successful and largely self taught economy watcher and market speculator. He has extensive knowledge of risk management and asset allocation, stock and options trading as well as market analysis. Tommy has worked in the fast paced restaurant industry for over 15 years. Tommy also writes for food publications such as Becket Media's "Grilled" Magazine. Tommy enjoys mountain biking and brewing beer. Tommy lives in the Asheville, North Carolina.

For more information visit: http://forexegg.com

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