Danish krone is the official currency in Denmark. This country is a member of the Eurozone, but it doesn’t want to deal with ordinary money. That’s why the EUR/DKK is a curious instrument to look at.
As long as the currency is bound to the euro, the National Bank of Denmark doesn’t watch rising prices precisely. That’s why there’s no straight relationship between the discount rate and DKK.
Such a matter of things is explainable: Denmark signed the ERM-2 agreement. According to this document, the euro and the Danish krone correlate at the following ratio: 1 EUR=7.46 DKK. A probable corridor of the discount rate changes shouldn’t be more than 2.5%.
The agreement started to be discussed in 1979. At that time, the talk about the common economic space aroused. In 1999, when the euro was introduced, Denmark decided to re-sign the document and save the right to have a national currency. 56.5% of people voted “for” such a decision.
That’s why traders don’t have to monitor all the changes in the economy and consider factors having an impact on the discount rate. The bank of Denmark strives to hold the most significant deviation from the point mentioned in ERM-2, which is 1%.
As long as ERM-2 provides a lot of support from the ECB in the event of dangerous instability in the foreign exchange, the currency of Denmark will maintain its value.
Traders have been engaged in dealing with the changes and variability of the EUR/DKK pair. In the previous ten years, nothing wobbled the reliability of the documents between the Danish National Bank and the ECB.
It means that Denmark will start using the euro rather soon, but before that happens, the beginners in trading can try working with this pair, which will seem natural to them. The risks are small, and the predicted profit isn’t too high.
The singular moment is that the pair can be used if the trader wants to be involved in dealing with scalping and if he aims at medium and long-term trading. The couple is predictable.
It’s not too hard to trade EUR/DKK as we have already said before. The application if indicators and conducting technical analysis will be enough.
The discount rate is very cyclical because of a narrow corridor. After the rise, you will face the decline. It is actual for any timeframe, and the surrounding situation cannot influence this.
However, the euro and the Danish krone are the official currencies prone to the pressure from the state of the world economy.
The Central Bank of Europe influences the euro discount rate. It occurs via the setting of the discount rates. When they fall, the same thing happens with the currency cost. The trend is the same as the rising tendency.
Speaking of the Danish krone, we see a more straightforward matter of things. The central bank uses a policy of negative rates. Therefore, borrowers get compensations if they take loans.
The financiers use the instrument to make the currency weaker and rise the economic state. Traders should realize that when such a thing happens, Danish krone has a dominant position over the euro.
Bank has to lower the currency liquidity to maintain the corridor at the figure of 2.5%. Combined with a rise in the euro discount rate, it means that EUR/DKK quotes will increase, and with decreasing discount rates, they will drop.
The influence of the mechanism can be seen every six weeks when the ECB states the actual currency discount rates for the future. At that time, the pair is the most variable and can help to earn money. Other than that, the changes aren’t too dramatic.
Speaking of the tendencies for the trend, when EUR/DKK increases or decreases over a couple of months, it happens as long as the ECB doesn’t alternate the discount rate or such changes aren’t significant.
No more factors can influence the pair because ERM-2 excludes them. That’s why traders should know how the ECB decided on this or that discount rate. It is done considering employment info, GDP, and mortgages.