What Role Does the ECB play in the Vast Universe of Forex?


euro coinsThe ECB is one of the cornerstones of forex market action. Ever since the launch of the Euro as the single currency of the European Union, the ECB’s role as the issuer of currency, and sole determinant of monetary policy of the Eurosystem has made it a constant feature of forex market trends and volatility. Both professional traders who command billions of money in leveraged accounts, and retail traders with only limited resources attach a great value to the actions and decisions of the institution. What makes the ECB such a crucial focus of attention in the forex world?

Size, of course, is one of the answers. By GDP count the European Union is the largest economy in the world, and the currency of such an economic giant is naturally going to have a major impact on forex trends regardless of who is managing monetary policy. However, size is not the only answer. The ECB is also seen as the future successor of the Federal Reserve in determining global trends as the dollar loses its status as the currency of the globe in the coming years. If you’re considering starting up a forex trading account, this is a crucial piece of information to keep in mind.

The mandate of the ECB dictates that the institution protect the value of the currency. Keeping inflation low is the main goal of the ECB with the exclusion of every other secondary concern, so markets find the decisions and policy choices of the institution easier to understand and analyze, even if market consensus disagrees with the decisions of the ECB. Also, just about any nation that has problems with the United States will choose to attach greater significance to Euro-based transactions as part of the effort to diversify from the dollar and to target and weaken American hegemony. These factors make the Euro an important counter-weight to the dollar in the grand scheme of events that concern forex traders. The EURUSD parity, for instance, is a powerful indicator on currency trends and market events in the forex world, and the ECB plays a major role in directing these trends for obvious reasons.

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The ECB has a clear mandate and it is not that difficult to understand or interpret its decisions most of the time. This is a major advantage over the Federal Reserve, for example, where the policy goals and guidelines are much more fluid, and the opinion of the chairman is far more of a determinant in the long term. Traders have an advantage, in that sense, as they analyze the decisions and policies of the European Central Bank. That’s why understanding this institution with respect to its buildup and mission is an acceptable task even for a beginner of forex analysis.

To learn forex online from a technical trading approach, the behavior of indicators is the most critical determinant. For fundamental strategies, interest rate trends from the most important factor determining market balances. The ECB always has a say in the equations that determine these balances, and any trader who masters its behavior is sure to derive great benefits from this knowledge in the longer term.

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