Foreign exchange (FX) traders follow events and statistics that impact the euro and trading of euro-based currency pairs. The euro is the official currency of 20 of the 27 member countries that comprise the European Union (EU). These 20 member countries form the eurozone, which recorded an aggregate GDP of about $14.6 trillion in 2021.
The eurozone accounts for over 85% of the Gross Domestic Product (GDP) of the European Union (EU). Germany, France, Italy, and Spain represent three-quarters of the eurozone’s GDP. Traders commonly focus on reports on monetary policy, prices & inflation, confidence and sentiment, GDP, and balance of payments.
Key Takeaways
- The euro is the official currency of 20 of the 27 member countries that comprise the European Union (EU).
- Germany, France, Italy, and Spain represent three-quarters of the eurozone’s GDP.
- The measure of inflation in the eurozone is the Harmonised Index of Consumer Prices (HICP).
- The German ZEW Survey is prepared monthly by the Centre for European Economic Research.
- The Eurozone GDP is a quarterly report prepared by Eurostat that informs the overall economic output of the eurozone.
1. HICP
Inflation affects all currencies, including the euro. Countries with high levels of inflation will see their currency depreciate so that the prices of goods between countries remain relatively equal. A central bank may raise interest rates to tame inflation. The Harmonised Index of Consumer Prices (HICP) measures inflation levels in the eurozone. This indicator calculates the price of a basket of goods for an average household.
HICP data are published monthly by Eurostat, the statistical office of the European Union. At the end of each month, a euro area flash estimate for headline inflation is released. This is accompanied by flash estimates for the main components of the euro area HICP: energy, food, non-energy industrial goods, and services. The flash estimate is followed by a full release in the middle of the month, which comprises all country and euro area breakdowns and special indices.
2. ZEW Survey
Traders gauge economic conditions in the eurozone by analyzing confidence and sentiment reports, such as the German ZEW Survey, prepared monthly by the Centre for European Economic Research. The survey asks a sampling of up to 300 financial experts where the economy is headed over the medium-term horizon.
Responses are restricted to positive, no change, or negative. This simple response structure allows the ZEW indicator to reflect whether experts and analysts are optimistic or pessimistic about the economy. If the ZEW indicator comes in above forecasts, this translates into a positive effect for the euro, while a ZEW below forecasts could put pressure on the common currency. A ZEW number above zero indicates optimism and a number below zero indicates pessimism.
3. ECB Press Release
Every currency is affected by the monetary policies of its respective central bank. For the euro, that is the European Central Bank (ECB), and decisions regarding interest rates made by the ECB can have a significant impact. ECB Press Releases provide interest rate changes, economic news, and information given by the ECB president can move markets.
4. Eurozone GDP
The Eurozone GDP is a quarterly report prepared by Eurostat and released about two months after the end of the quarter. This report informs the overall economic output of the eurozone. The growth and health of an economy are typically measured by the GDP, a periodic measure of the value of the total goods and services produced. GDP growth is a sign that the economy is strong and healthy, which is positive for the currency.
5. Trade Balances
The Eurozone Trade Balance and current account are indicators of the balance of payments for a country. The current account is one of three accounts that make up the balance of payments for a country. The other two are the financial account and capital account. This report measures how a country interacts with other countries concerning the trade balance, income payments, and other payments.
A current account surplus indicates more capital flowing into the country than exiting the country, which is positive for the currency. A current account deficit means that financial capital is leaving the country than coming in. Germany and France are two of the largest countries in the eurozone, and many traders focus on the current account report for these two nations, the German Current Account and the French Current Account.
What Goods and Services Are Included in the HICP?
All consumer goods and services purchased in monetary transactions come within the scope of the HICP and include food, petrol, durable goods, and services.
What Is the Most Commonly Traded Currency Pair?
What Is the Main Task of the ECB?
The main task of the ECB is to maintain price stability.
The Bottom Line
Many economic indicators can affect the euro. FX traders commonly look to GDP reports and balance of payments and rely on the European Central Bank’s press conferences and releases for information.
