EUR/USD Outlook 2026-2027: Uptrend Meets Uncertainty

A Critical Moment After a Year of Rapid Rise

2025 is a harvest year for the euro. From the beginning of the year at 1.04 USD to 1.19 USD in September, an increase of over 13%. As of November, EUR/USD stabilizes around 1.16. This performance breaks the over a decade-long trend of euro depreciation, but questions follow: Can this upward momentum continue into 2026 and 2027?

To answer this, we need to weigh several conflicting forces. On one hand, the interest rate policies of the US and European central banks provide a solid foundation for the euro. On the other hand, European political risks, energy cost disadvantages, and the US economy’s unexpectedly strong performance cast shadows over the euro’s outlook.

Technical Analysis: Key Support Levels Indicate Downside Risks

From a chart perspective, EUR/USD currently faces two important defenses. Downward, 1.1550 and 1.1470 are major supports. If it breaks below 1.15, the bullish logic is severely challenged, potentially triggering a chain of declines to the 1.10-1.12 range.

Conversely, an upward breakout requires crossing the resistance zone of 1.1800-1.1920. If it can hold above 1.20, then 1.22-1.25 becomes the next target. The current trading range oscillates roughly between 1.14 and 1.17, reflecting market indecision about the outlook.

Rate Differentiation: The Strongest Argument for the Euro

This is the most quantifiable support factor. The Federal Reserve cut interest rates by a total of 50 basis points in the second half of 2025, with the federal funds rate now in the 3.75%-4.00% range. Markets expect further cuts to 3.4% by the end of 2026.

The European Central Bank’s situation is quite different. Deposit facility rates have remained at 2.00% since June, with the official stance that the cycle has ended. Economics textbooks tell us that narrowing interest rate differentials usually lead to currency depreciation of the weaker side (here, the dollar), moving toward equilibrium. Historical data shows that for every 100 basis point narrowing, exchange rates adjust by about 5-8%. Based on this logic, EUR/USD should rise from the current 1.16 to 1.22-1.25.

There’s also a more aggressive hypothesis—if Germany’s stimulus plan proves effective, the ECB might start raising interest rates as early as 2027, even before the Fed. This would further strengthen the euro.

US Experience: Growth Momentum Should Not Be Underestimated

Trump’s second term has so far delivered some tangible economic data. In Q2 2025, GDP growth reached 3.8%, driven mainly by explosive growth in AI-related investments.

Tariff Strategy

In April, “D-Day,” announced plans for tariffs up to 145%, which indeed alarmed markets. But this follows Trump’s old routine—initially proposing extreme measures, then compromising to a “moderate plan,” and finally declaring victory. Currently, actual average tariffs are around 15-18%, higher than the previous term but not extreme.

Interestingly, to secure tariff concessions, the US has secured investment commitments from major trading partners like the EU and Japan. Essentially, Trump used tariffs to threaten other countries into investing in the US, thereby strengthening the domestic economy. This move was quite effective.

Tax Reform and Tech Investment Boom

In July, the “Great American Act” made the 2017 tax cuts permanent. Corporate tax remains at a low 21%, combined with cheap energy, attracting a flood of global tech and manufacturing companies:

• TSMC is building three chip factories in Arizona with a $165 billion investment
• Samsung is investing $44 billion in Texas
• Intel is expanding in Ohio with a $20 billion investment

These projects show the US’s increasing attractiveness as an investment destination. But US debt issues are worsening. The deficit in 2026 is projected to reach about 6% of GDP, and Trump’s attacks on the Fed’s independence raise concerns among international investors. Ironically, despite Trump’s desire to weaken the dollar to support exports, the USD has still depreciated against the euro by over 10% this year.

Germany’s €50 Billion Plan: Overhyped?

This infrastructure fund spanning 12 years is often portrayed as a savior for the eurozone, but reality may be more complex.

Energy Costs Cannot Be Solved by Infrastructure Alone

German residential electricity prices are 30-35 euro cents per kWh, industrial prices 15-20 euro cents, 2-3 times higher than in the US. No amount of infrastructure investment can change this. Although the government has set a cap of 5 euro cents per kWh for industrial electricity from 2026-2028, this is merely a temporary measure. For energy-intensive industries like chemicals, steel, and semiconductors, Germany remains uncompetitive long-term. Factories that have already moved abroad are unlikely to return, and even if they do, it will take years. This directly weakens the multiplier effect of infrastructure spending.

Implementation Challenges Are Severely Underestimated

The average completion cycle for German infrastructure projects is 17 years, with 13 years spent on approval. The construction industry faces a shortage of 250,000 workers. This means stimulus funds may not be fully spent or may be spent inefficiently.

Defense Spending May Flow to the US

Much of the defense procurement in “special assets” (F-35 fighters, Patriot missile systems, Chinook helicopters, etc.) will likely stay in the US rather than flow to German companies. This weakens the intended boost to the German economy.

Political Uncertainty Contains Risks

The 2026 state elections could bring surprises. Polls show support for far-right parties approaching 25%. If they become the largest party in some states, it could trigger a political crisis, impairing the ability of a grand coalition to govern effectively. This would push up German bond yields and increase the financing costs of stimulus plans.

France and the Eurozone: Political Turmoil Overshadows Fundamentals

France continues to act as a ticking time bomb in the eurozone. In October, a government collapsed within 24 hours. The deficit is 6% of GDP, debt 113%, and government bond yields are higher than Spain’s—an alarm signal.

Eurozone Q3 growth was only 0.2% quarter-on-quarter, annualized at 1.3%, far below the US’s 3.8% in the same period. The 2026 growth forecast is only 1.5%. The only bright spots are well-controlled inflation (2.0%) and relatively healthy unemployment (6.3%), which give the ECB room to maintain stable policies.

But the ECB faces a dilemma. If Germany’s stimulus plan proves effective, the economy could accelerate, pushing inflation higher and forcing the ECB to hike rates. But rate hikes would be a nightmare for debt-laden Southern European countries, risking a eurozone split. The ECB has tools like TPI to address this, but they require cooperation from member states, which is currently lacking.

Mainstream Forecasts: High Consensus for 2026, Divergence Begins in 2027

Interestingly, major institutions’ forecasts for EUR/USD at the end of 2026 are highly aligned, all pointing to appreciation. The reasons include interest rate differentials, USD overvaluation, reversal of capital flows, and German stimulus. Specific forecasts are:

By 2027, divergence appears. The bullish case remains largely unchanged, but the bearish case introduces new angles: the Fed may halt rate cuts, the US economy could strengthen again, and the eurozone may lack attractiveness.

Three Possible Scenarios

Neutral Scenario: Range-bound at 1.10-1.20

Balanced opposing forces. Rate differentials support a floor of 1.10-1.12, while European risks limit upside to 1.18-1.20. US economy grows modestly (1.8%-2.2%), avoiding recession but not booming. Some of Germany’s plans succeed, others falter. In this scenario, EUR/USD mostly fluctuates between 1.14 and 1.17, with buy opportunities at 1.10-1.12 and sell at 1.18-1.20.

Pessimistic Scenario: Drop to 1.05-1.10

2026 state elections fail, far-right parties gain strength, grand coalition collapses, stimulus plans are shelved. German bond yields surge, France’s fiscal crisis worsens, ECB is forced to cut rates again. Meanwhile, the US economy unexpectedly remains strong—AI-driven productivity boosts, inflation returns to 2%, and the Fed can comfortably pause at 3.5%. This combination could push EUR/USD down to 1.08-1.10, possibly touching 1.05.

Optimistic Scenario: Surge to 1.22-1.28

Germany’s political situation stabilizes, stimulus measures proceed smoothly, growth reaches 2% (a major shift for the eurozone). The ECB can lay the groundwork for rate hikes in 2026-end for 2027, further supporting the euro. Meanwhile, the US faces difficulties: sticky inflation, worsening employment, stagflation risks. Trump’s pressure on the Fed intensifies, and after the appointment of a new Fed chair in May 2026, uncertainty increases. International capital reduces dollar holdings, flows out. EUR/USD breaks above 1.20, eventually reaching 1.22-1.28.

Trading Strategies and Risk Management

Given the high uncertainty, a flexible, event-driven approach is recommended. Key events include:

• 2026 German state election results
• Fed chair succession announcement (May 2026)
• Developments in France’s fiscal situation
• Progress of Germany’s stimulus spending
• US economic data trends

Risk management is crucial. German political risks are often underestimated; if triggered, they could cause a domino effect. Escalating geopolitical conflicts or energy crises could trigger safe-haven flows into the dollar. The resilience of the US economy (especially AI and low-tax effects) may also surprise to the upside, putting downward pressure on the euro.

EUR/USD Outlook Summary

In 2026-2027, EUR/USD will fluctuate under the tug-of-war of multiple forces. Interest rate differentials provide technical support at 1.10-1.12, while USD overvaluation and reversal of capital flows support a bullish view. But political fragmentation in Germany and France, Europe’s energy disadvantages, and unexpectedly strong US economic performance are constraints.

Whether the euro can further appreciate ultimately depends on two key questions: first, can Germany achieve political reorganization and effectively implement stimulus after the 2026 elections? second, can the US sustain its AI-driven growth benefits, or will debt and policy uncertainties drag it down? The answers are still unclear, which is why markets remain volatile and uncertain.