EUR/GBP - How to trade the Euro vs. the British Pound
Reading time: 19 minutes
The Euro Pound, or EUR/GBP, is one of the leading currency pairs of choice for forex traders. In this article, you will learn everything you need to know about the EUR/GBP, how to trade it with different strategies, and more!
What is the EUR/GBP currency pair?
The EUR/GBP currency pair 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.
The 4 Main Features of the EUR/GBP
- You can trade the EUR/GBP pair 24 hours a day, 5 days a week.
- Take advantage of an average volatility of 64 pips per day since January 1, 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 (£1,000) and the maximum position is 100 lots (i.e. £10,000,000)
EUR/GBP Quick Start Guide: How to Trade
Placing a buy or sell order in the EUR/GBP is just as easy as with all other currency pairs. The EUR/GBP Forex pair is accessible on the Trade.MT4 and Zero.MT4 trading account (on MT4) and the Admiral.MT5 account (on MetaTrader 5).
Just follow these six quick and easy steps, and your position will be open to the market!
How to Buy the EUR/GBP
- Connect to your Admiral Markets account (WebTrader/MT4/MT5, Mobile app)
- Go to the "Market" tab
- Search for the EUR/GBP pair, in the field to the right
- Right-click on the currency pair, then choose to open a chart
- Once the chart has appeared, choose the number of lots
- Click on BUY using the one-click trading shortcut
When purchasing a position, make sure to choose according to 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.
Source: Admiral Markets WebTrader, Chart H1 EUR/GBP (from November 28 to December 10, 2019). Edited December 10, 2019, 1:56 p.m. Past performance is not a reliable indicator of future results, or of future performance.
How to Sell the EUR/GBP
- Connect to your Admiral Markets account (WebTrader/MT4/MT5, Mobile app, etc.)
- Go to the "Market" tab.
- Look for the EUR/GBP pair.
- Right-click on the currency pair, then choose the chart window.
- Once the chart has appeared, choose the number of lots you wish to sell
- Click on SELL using the one-click shortcut
You have now sold your position in the EUR/GBP. You can get started buying and selling the price action in a wide range of currency pairs and other instruments, by opening a FREE Trader's Room account with Admiral Markets today! Just click the banner below:
The Main Influencing Factors on EUR/GBP
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 Euro Pound 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, so we'll discuss these in more detail.
Central bank interest rates play a key role in the appreciation or depreciation of currency. A high interest rate implies a scarcity of the currency in circulation. If we refer to the law of supply and demand which governs the markets, when the supply (of money) decreases and the demand is constant (or that it increases), then the prices increase mechanically, which tends to see the currency concerned become more expensive on the markets.
Conversely, a low interest rate implies a surplus of the quantity of currency in circulation. Therefore, the more liquidity and inflation, the further value of the currency decreases. It's as simple as that.
The European Central Bank
The European Central Bank 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. The institution is based in Frankfurt, and the current president is Christine Lagarde.
Currently, the ECB's interest rates are negative, at -0.50% in order to facilitate the financing of the European economy:
Source: ECB press releases, graph by Admiral Markets, published on January 11, 2020
The Central Bank of England
For its part, the Central Bank of England, more commonly called the BoE, manages the minting and monetary policy of the Great Britain Pound (the GBP). The institution is based in London, and its current governor is Mark Carney.
The BoE's interest rate and announcements by its governor are closely followed by investors trading in the pound sterling or British stocks.
Currently, the BoE's key rate is 0.75%, this rate is average: low enough to support the British economy during Brexit, and high enough to control inflation and maintain room for deviation if necessary.
Source: BoE press release, graph by Admiral Markets, published on January 11, 2020
You can follow all the latest news and analysis of the major central banks with your FREE trader's room account with Admiral Markets! The Premium Analytics tools you will have access to, allow you to customise and follow all the news and data regarding your chosen forex pairs or other instruments. Click the banner below to get started!
Trading the 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.
Trading the EUR/GBP with 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 which 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're on MetaTrader 4 or MT5.
Stop being limited in your trading! You can click the banner below for your FREE download of the MetaTrader Supreme Edition plugin, and get started exploring the world of expert advisors.
Scalping the EUR/GBP
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, down 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 EUR/GBP prices move in your favour.
Swing Trading the EUR/GBP
Do you like to trade large movements and trends in the EUR/GBP?
With an average volatility of 64 pips per day since January 1, 2019, 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), if you are making a short trade!
You can find your swap fees in the Admiral Markets Trading Calculator.
Source: Admiral Markets MetaTrader 5 WebTrader, how to see the EUR/GBP swap fees
Strategy for Trading the EUR/GBP
Which EUR/GBP trading strategies are the best?
The best trading strategy on EUR/GBP, like all other instruments, is the one you build yourself, which you have tested, and with which you are the most comfortable!
The best way to build your strategy and use a demo account without risk.
For educational purposes, below you can see an example of an EUR/GBP strategy which you can take inspiration from, or to simply get a good idea of what a EUR/GBP trading strategy looks like.
EUR/GBP Trading Strategy
Time Units: M1, M5, M15, M30
EUR/GBP Buy Signal:
- The Heiken Ashi were red (sellers) and turned blue (buyers)
- The ADX is going up
- The DMI + crosses (or has already crossed) upwards the DMI-
- The prices are higher than the last selling fractal
Stop Loss and Take Profit EUR/GBP at purchase:
- Stop Loss is placed on the last buying fractal
- Take Profit simple: close the position when the first selling fractal, OR of the first red Heiken Ashi candle closed
- Take Profit aggressive: closing of the position when the DMI- crosses upwards the DMI +
EUR/GBP Sell Signal:
- Heiken Ashi were blue (buyers) and turned red (sellers)
- ADX is going up
- DMI- crosses (or has already crossed) up DMI +
- Prices rise higher than the last buying fractal
Stop Loss and Take Profit EUR/GBP for Sell:
- Stop Loss placed on the last selling fractal
- Take Profit simple: close the position when the first buying fractal, OR of the first blue Heiken Ashi candle closes
- Take Profit aggressive: close from the position when the DMI + crosses upwards the DMI-
Do you want to train yourself to develop your own trading strategy? Click the banner below to join our series of educational seminars and webinars offered FREE by Admiral Markets, and learn the strategies of trading professionals!
Trading Trends in the EUR/GBP
In order to utilise this 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 EUR/GBP trend in M15.
- If you want to trade the EUR/GBP with an M15 chart, you can identify the underlying trend in H1.
EUR/GBP 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 (in W1) to trade with a chart in minutes (M1, M5, M15 etc.).
How to identify the EUR/GBP trend
You can use two different methods to identify ongoing trends in the EUR/GBP pair: a technical trend indicator, or by using EUR/GBP price analysis.
A standard, proven indicator used by a large number of traders is the 200 Period Simple Moving Average. 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. It can be interesting to open only long positions to limit false signals.
If you prefer to use the EUR/GBP 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, the EUR/GBP quotation is trending downward.
Example of a EUR/GBP 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, 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).
This is what trading the EUR/GBP looks like.
To calculate the profit and loss of potential trades, 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.
Source: Site www.admiralmarkets.com, Trading Calculator and Margin. Edited December 10 at 2:42 p.m. GMT.
Best Time to Trade the EUR/GBP
- Monday to Friday
- 8:00 am to 4:30 pm
The EUR/GBP Forex pair has always been volatile, but its average volatility per day has increased since the Brexit vote. For 2019, the average daily volatility of the EUR/GBP is 64 pips.
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 (9am-6pm), which also corresponds to the highest volume of trades (35% of daily Forex transactions). From 8:00am, 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 days to trade the pound sterling?
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 consistent, when you know 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 quite enough to allow scalpers and day traders to seize trading opportunities.
The Fundamental Factors of EUR/GBP 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 pound sterling, you can use the EUR/GBP Forex 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
Source: Admiral Markets Forex Economic Calendar
EUR/GBP Forex Correlation
Source: Admiral Markets MT5, EUR/GBP D1 Chart, EA Correlation Matrix - Published January 12, 2020
The above correlation matrix shows us the correlation between EUR/GBP and other Forex pairs over the last 100 days.
We observe that there are five assets with a strong correlation to EUR/GBP:
- EURJPY: Correlation of - 89
- USDJPY: Correlation of - 88
- GBPJPY: Correlation of - 99
- GBPUSD: Correlation of - 98
- GBPAUD: Correlation of - 96
A negative correlation coefficient close to -100 indicates that the price of an asset tends to move in the opposite direction to the EUR/GBP, and conversely, a correlation coefficient close to 100 indicates that the price of an asset changes in the same direction as the price EUR/GBP.
Among the 5 Forex pairs with the strongest inverse correlation to EUR/GBP, we have the GBP/JPY, the GBP/USD and the GBP/AUD, because these three pairs all have an inverse correlation with EUR/GBP, and their coefficient is very close to -100 (respectively -99, -98 and -96).
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.
EUR/GBP Trading Signal Correlation
Once you have analysed the current 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 a 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/JPY, with an inverse correlation of - 99 over the last 100 days. If an uptrend begins on the GBP/JPY, there is a very good chance that a downtrend begins at the same time or in a few moments on the EUR/GBP.
EUR/GBP Hedging with Correlations
You can also hedge on a currency pair correlated with the EUR/GBP when you open a position on the EUR/GBP. 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 on the EUR/GBP when buying, you can cover yourself by taking a similar position on the GBP/JPY.
As the GBP/JPY 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.
You can begin experimenting with all the currency pairs and analysis strategies completely risk-free and for FREE, with an Admiral Markets Demo Trading Account! Click the banner below to get started today:
The EUR/GBP is one of the most traded and closely watched currency pairs in the forex market. There are many exciting and successful ways to trade and analyse the EUR/GBP, and improve your forex and futures trading strategy and plan.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.