Trading EUR/GBP: How to Trade the Euro/British Pound
The euro vs British pound, EURGBP is a popular currency pair for Forex (FX) traders. In this article, you will learn everything you need to know about how to trade EUR/GBP using different strategies and tools!
Table of Contents
EUR/GBP: An Introduction
The EUR/GBP exchange rate represents the price of the Euro against the price of the British pound. The EUR/GBP quotation is mainly used to convert euros into pounds sterling. For example, if the EUR/GBP price is 0.85, it means that €1 is worth £0.85 or that £0.85 is worth €1!
The EUR/GBP pair belongs to the Minor Forex Pairs group. The EUR/GBP is a currency pair of particular interest to European and British Forex traders and this has become all the more true since the Brexit vote heavily impacted the currencies involved.
4 Main Features of the EUR/GBP
- Trading the EUR/GBP is possible 24 hours a day, 5 days a week.
- Take advantage of an average volatility of 64 pips per day in 2019. (source MT5 since January 1, 2019, to December 08, 2019)
- The base currency for positions on the EUR/GBP is the pound sterling.
- The smallest position on the EUR/GBP is a 0.01 lot (i.e. £1,000) and the maximum position is 100 lots (i.e. £10,000,000)
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EUR/GBP: Trading the Currency Pair
Placing a buy or sell order in the EUR/GBP is just as easy as with all other currency pairs. Just follow these six quick and easy steps, and your position will be open to the market!
How to Buy and Sell the EUR/GBP
- Login to your Admiral Markets trading account on your MetaTrader trading platform
- Go to the "Market" tab
- Search for the EUR/GBP pair
- Right-click on the currency pair, then choose to open a chart
- At the top of the window select "New Order" and then fill out details for your desired trade
- Click on the "Buy by Market" or "Sell by Market" buttons
When purchasing a position, make sure to choose whether you expect an increase or decrease in the value of either the euro or the pound sterling, to produce gains from the future price action.
EUR/GBP Forecast: Influencing Factors
Now that you know the process for making trades on the EUR/GBP, what are the factors that influence this Forex pair's price?
The price of the EUR/GBP is influenced by a range of factors, including central bank interest rates, press conferences, unemployment data, trade balances, inflation, GDP growth, sales data, market sentiment and consumer confidence.
While all of these influence the price, the factor that most traders focus on is central bank interest rates.
Central bank interest rates play a key role in the appreciation or depreciation of the currency. A high-interest rate will generally lead to the appreciation of a currency. Whereas, when interest rates are lowered, this will generally cause a currency's value to fall.
The European Central Bank
The European Central Bank, based in Frankfurt, manages the Euro currency, and is commonly referred to as the ECB. The ECB's decision on its interest rates, whether modified or not, is one of the most followed news releases by investors who trade Forex pairs containing the EUR and European indices.
In 2022, the European Central Bank - along with many others around the world - began increasing interest rates for the first time in 11 years. This helped the euro to appreciate against commodity currencies. However, it struggled against the US dollar as the Federal Reserve increased interest rates higher and more frequently.
The Bank of England
For its part, the Bank of England (BoE), based in London, manages the minting and monetary policy of the Great Britain Pound. The BoE's interest rate and announcements by its governor are closely followed by investors trading in the pound sterling or British stocks.
The Bank of England also started to increase interest rates in 2022, in line with many other central banks. However, a new government and chancellor caused a huge drop in the British pound with a new 'mini-budget' announcement in September 2022. This led to the EURGBP exchange rate surging higher with analysts forecasting the Bank of England will need to increase interest rates faster and higher than the European Central Bank.
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Different Ways to Trade EUR/GBP
Like all Forex pairs, EUR/GBP can be traded to suit many different styles! These include using Expert Advisors, scalping and swing trading.
Expert Advisors
With the Admiral Markets exclusive MetaTrader Supreme Edition, you can use EAs (Expert Advisors) to trade the EUR/GBP in a fully automated way. Expert Advisors are software plugins which give you signals to identify trends, or buy/sell alerts, according to their type and programming.
If you have coded, purchased, or installed an EA dedicated to the EUR/GBP, you can utilise it on all types of accounts offering the EUR/GBP pair - whether you are on MetaTrader 4 or MetaTrader 5.
Scalping
Scalping is one of the most popular styles of trading, particularly for those trading currency pairs like the EUR/GBP. Scalping refers to a fast-paced, short-term style of trading, where traders seek gains through a large number of small trades.
Scalping on EUR/GBP is simple, thanks to a particularly low spread of 1 pip on average, up to 0.3 pips. If you are a more aggressive speculator on the market, this low EUR/GBP spread is for you! It allows you to limit trading costs, and to have more gains within your reach, and quickly, when the pair moves in your favour.
Swing Trading
Do you like to trade large movements and trends?
The EUR/GBP can appeal to medium and long-term traders (also known as swing traders) who wish to seize opportunities over several days or even weeks.
The main drawback encountered by swing traders is the swap, which is a daily interest charge that gets applied to trades that are kept open overnight. The swap fees are relatively low on the EUR/GBP pair, they can even be positive (meaning you get paid interest, instead of being charged interest).
Discover the Best Swing Trading Indicators.
Trading Strategy for EUR/GBP
In order to utilise this trading strategy, you first choose to trade in response to a long-term trend in the EUR/GBP price. To determine the direction of the trend compared to the time frame on which you are going to trade, it is advisable to choose a longer-term unit of time, but not too long either!
So what does this allow?
- If you want to scalp the EUR/GBP on an M1 chart, you can identify the trend in M15.
- If you want to trade the EUR/GBP with an M15 chart, you can identify the underlying trend in H1.
Trend Trading Tip
It is better to avoid choosing a time unit too far from the one you are going to trade, as this would include less relevant information. For example, it is completely unnecessary to analyse the trend on a weekly chart (W1) to trade with a chart in minutes (M1, M5, M15 etc.).
How to Identify the Trend
You can use two different methods to identify ongoing trends in the EUR/GBP pair: a technical trend indicator, or by using price analysis.
A standard, proven indicator used by a large number of traders is the 200-period Simple Moving Average (SMA). If prices move below the moving average, and the chart is trending down, then the trend is bearish. You may consider following only EUR/GBP short signals to filter out false signals.
Conversely, if prices are above the moving average and the chart is trending higher, then the trend is upward, or bullish. It can be interesting to open only long positions to limit false signals.
If you prefer to use price action, Dow theory may help. If you observe that the last lows are moving higher and higher and that the last highs were likewise higher, then the EUR/GBP price is in an uptrend. Conversely, if the troughs are lower and lower, and the peaks are likewise also lower, you are looking at a downward trend.
How to Risk Manage a EURGBP Trade
- If the exchange rate is at 0.8500, and you anticipate a price increase, so you decide to buy 1 lot of the EUR/GBP (pip value = £10). The value goes up to 30 pips to 0.8530 and you close your trade. This means that you achieved a gain of £300 (30 pip x £10).
- Alternatively, let's say the current EUR/GBP value is at 0.8500, and this time you anticipate a price drop. So you decide to sell 1 lot of the EUR/GBP (pip value = £10). The value drops 20 pips, down to 0.8480 and you close your trade. This means that you have achieved a gain of £200.00 (20 pips x £10).
- In the case of a losing EUR/GBP trade, the calculation is identical. Let's just see this in an example with the losing purchase:
- Imagine that you bought the EUR/GBP with 1 lot at 0.8600 with a close 10 pips lower on the 0.8590, you lose £100.00 (10 pips x £10).
To calculate the profit and loss of potential trades, you can use the Admiral Markets Trading Calculator. It allows you to directly and quickly determine the value of a EUR/GBP pip according to your number of lots as well as your leverage, and to estimate your potential gains or losses. This is so you can know exactly how many lots to purchase in order to achieve your intended gains.
Best Time to Trade the EUR/GBP
- Monday to Friday
- 8:00 am to 4:30 pm
The EUR/GBP FX pair has always been volatile, but its average volatility per day has increased since the Brexit vote.
Unsurprisingly, the most interesting hours to trade the EUR/GBP (where it's the most volatile), corresponds to the hours of the London trading hours (08:00 - 17:00 local time), which also corresponds to the highest volume of trades (35% of daily Forex transactions). From 08:00, volatility begins to grow, as it is also the time for the opening of European futures markets.
The EUR/GBP pair also benefits from the fact that all the major European banks have market activities in London, the world's leading financial centre, and therefore regularly needs to exchange the GBP for euros and vice versa. This contributes to the liquidity and volatility of this pair.
Which Are the Best Days to Trade?
If we look at 2019, we see that the two most volatile days on the EUR/GBP are Tuesday and Thursday, with an average volatility of 68.5 pips on Tuesday and 66.5 pips on Thursday (source: EUR/GBP Admiral Markets MT5 listing). Which is quite logical, when you take into account that most of the economic announcements linked to the EUR/GBP, in particular those of the European and British central banks, are published on Tuesday and Thursday.
The calmest day of the week with the least volatility EUR/GBP is Wednesday, with an average daily volatility of 60 pips, which is still quite enough to allow scalpers and day traders to seize trading opportunities.
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EUR/GBP: Fundamental Analysis
Fundamental analysis consists in studying the economic and political environment of the EUR/GBP price.
To follow the other macroeconomic factors which impact the course of the currency pair, you can use the Admiral Markets economic calendar. Each economic announcement or dataset published in the UK or Europe is likely to impact the EUR/GBP in some way.
You can use the Admiral Markets Forex calendar to follow these announcements. In order to make following the appropriate economic calendars simple, you can use the filter to select only European and United Kingdom announcements. Simply follow these 3 steps:
- Click on the blue Filter button
- Select the impact range of the announcements you wish to follow
- Check United Kingdom and Euro Area
Forex Correlations for Trading EUR/GBP
The above correlation matrix shows us the correlation between EUR/GBP and other Forex pairs over the last 100 days. We observe that there is just one asset with a strong correlation to EUR/GBP: GBP/CHF with a correlation of -89.
A negative correlation coefficient close to -100 indicates that the price of the asset tends to move in the opposite direction to the EUR/GBP. Conversely, therefore, a correlation coefficient close to 100 indicates that the price of an asset changes in the same direction as the price EUR/GBP.
The Admiral Correlation Matrix can be accessed via the MetaTrader Supreme Edition plug-in from Admiral Markets. The Correlation Matrix can be found in the "Navigator" window, under the "Expert Advisors" drop down, as shown below:
There are two significant ways to use correlation data in trading. The first we will discuss consists of using it in analysis to find entry signals for positions or confirmations of trades.
Signal Correlation Trading
Once you have analysed the EUR/GBP chart, you can also analyse the graph of the pairs with the highest positive or inverse correlation to the EUR/GBP. If you are waiting for the start of the trend, or for a signal on the EUR/GBP, and a trend starts to form on a strongly correlated pair, then you can anticipate that the same trend will soon start on the EUR/GBP (or an inverse trend if it is an inversely correlated pair).
For example, on the correlation matrix above, the pair most strongly correlated with EUR/GBP is the GBP/CHF, with an inverse correlation of - 89 over the last 100 days. If an uptrend begins on the GBP/JPY, there is a good chance that a downtrend will begin at the same time or in a few moments on the EUR/GBP.
Hedging with Correlations
You can also hedge on a currency pair correlated with the EUR/GBP when you open a position. This method is mainly used by banks, investment funds, and professional traders to limit market risk.
The advantage of hedging is to limit losses if the market moves against you, but this also has the consequence of limiting your gains.
For example, if, after analysing the EUR/GBP, you have a buy signal and you take a position in the market, when buying, you can cover yourself by taking a similar position on the GBP/CHF (continuing with the above example).
As the GBP/CHF is inversely correlated to the EUR/GBP, if EUR/GBP prices go down (and you lose money), GBP/JPY prices should go up. Your gains on the GBP/JPY trade will allow you to partially or fully compensate for your loss on the EUR/GBP.
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Frequently Asked Questions
How do I trade EUR/GBP?
To trade EURGBP you need a regulated Forex broker that provides a simple to use, free trading platform with an account that also provides low fees to trade currencies. Admiral Markets is a regulated Forex broker that provides a range of platforms, low fees and a range of trading indicators, trading ideas, education and research materials.
What affects the EUR/GBP?
EURGBP is mainly affected by the policy actions of the European Central Bank and Bank of England. However, politics can also play a part such as Brexit. The level of trade can also have an impact on the exchange rate as Europe is the UK's biggest trading partner.
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