€ per pip, volatilty and inflation

I was wondering.. if this makes sense...
Since the EUR is strong against the dollar... we have lately a value around 6.35 €per pip for a standard 100,000 units lot. With a EURUSD of 1.0000 a pip would be 10€ .. same as in dollars.... So since EURUSD is the most traded pair... I wonder if the high volatility we are having recently is also because we need more pips for the same € than before.

But more important than this curiosity...
Inflation in Europe worries but it is different from the inflation in US. Because the inflation in US also has the problem of the flow of USD to other currencies. I can see a difference of European inflation with a currency that is going stronger than inflation in US with a currency that is weakening. So.. I don't have an idea why the ECB is so determined and worried to fight inflation and the FED is still more worried about other things.... The only thing that comes to my mind is that it is a clear sign that they REALLY WANT a weak USD for some reason. External Debt? other reasons?

The power of EUR or USD is not only about the EURUSD ratio... but also the inflation of EUR and USD. I don't want a 2.0 EURUSD if the inflation in Europe is triple than in US for example. That's why ECB wants to fight inflation first. I wonder if someone has studies of relations between EURUSD ratios and inflations data to see where are we going. I also ask why inflation raises so much in Europe when the EURUSD is so strong. It should be less. Anyone knows what is really happening with inflations?

Where are we going?

Let me answer your question with a question, and I think you'll understand what I mean. Is the Euro strong against just the USD, or against all other currencies as well? It makes sense that the inflationary fears would move together across the currencies, but it's not the end all be-all reason for a currency to be valued above another specific currency.

Yes and no. Pips are not a very good way to measure volatility (or anything else for that matter). Let me illustrate with an example:

Fictional Currency 1 (FC1): FC1/USD = 2.0000
Fictional Currency 2 (FC2): FC2/USD = 1.0000

Now we have a 5000 pip move up on both currencies so the new values are:

FC1/USD = 2.5000
FC2/USD = 1.5000

Would you say that the "volatility" in both pairs is the same because they both moved by the same amount of pips? Of course not.

FC1/USD moved up by 25% while FC2/USD moved up by 50%, so the real "volatility" on FC2 is actually much higher despite the fact that the number of pips gained is the same. Do you see the difference?

So, back to real life currencies (EUR/USD), let's say our pair has an average daily range of 1% of its opening price. When it was trading at 1.0000, that would make the daily range about 100 pips. Now that it is trading around 1.5000, it's daily range would be about 150 pips. So a higher daily range in pips is required if the same daily range in % is to be achieved.

Hope that clears it up a bit. I think that many traders don't really understand this relationship and it is important.


A part of the reason is that the US job market is more flexible so that wage inflation is less of a threat. In Europe's highly unionized system, once wage increases set in, they are impossible to reverse. These are the second round effects Trichet keeps hawking about (or at least he did until the last press conference).


I am not exactly sure what you mean here, but I'll answer it the way I understand it. Apologies if this is not the answer you are looking for:

Eurozone inflation doesn't really matter to people who are holding EUR, unless they are living there (or have expenses there). If I have EUR100,000 and EUR is appreciating against the dollar, and I live in the US, then I couldn't care less what the inflation rate is in Germany. From my point of view, those Euros are appreciating in real value. Only if I lived and had day-to-day expenses in the Eurozone would I really be affected by European inflation. As long as I live outside it and I'm holding Euros, then Eurozone inflation is my friend because it drives up interest rates and it drives up the value of the currency against my home currency (where inflation is presumed to be low).