Euro trend ten-year cycle review: Are there still investment opportunities in the next 5 years?

As the world’s second-largest reserve currency, the euro has experienced multiple major tests since its official issuance in 2002. From the 2008 financial crisis, the European debt crisis in the 2010s, to recent pandemics and geopolitical conflicts, each shock has left a deep mark on the euro’s trend. To grasp future investment opportunities, one must first understand the historical evolution of the past 20 years.

Key Turning Points in the Euro’s 10-Year Trend

2008: From a historical high to the financial abyss

In July 2008, the euro soared to 1.6038, a 20-year high against the US dollar, then plummeted sharply. This turning point was driven by the global financial collapse triggered by the US subprime mortgage crisis.

The chain reactions included: European banks suffering heavy losses due to holding large amounts of US-related financial assets; credit markets freezing, leading to corporate financing difficulties; economic recession accelerating, increasing national fiscal deficits; and the European Central Bank (ECB) being forced to implement quantitative easing and cut interest rates. Even worse, the subsequent debt crises in Greece, Ireland, Portugal, and others further undermined investor confidence in the overall debt repayment capacity of the eurozone. During this period, the euro trended downward in a one-sided manner, with market concerns about systemic risks in the euro system reaching a peak.

2017: The turning point of bottom rebound

After nearly 9 years of prolonged decline, the euro began to rebound after falling to a 1.034, a historical low in January 2017. Several key drivers behind this turning point include:

Improving economic data: The eurozone unemployment rate successfully fell below 10%, and the manufacturing Purchasing Managers’ Index (PMI) broke through 55, reflecting a clear acceleration in economic activity. Effective central bank policies: The ECB’s years of easing began to show results, with low interest rates gradually boosting asset prices and consumer confidence. Diminishing political risks: The results of the France and Germany elections met market expectations, and Brexit negotiations made initial progress, sharply reducing market uncertainty. Technical oversold conditions: The euro had fallen more than 35% from its 2008 high, indicating extreme undervaluation and laying the foundation for subsequent rebound.

2018: Short-term high point and adjustment

In February 2018, the euro temporarily rose to 1.2556, a 3-year high. But this was short-lived. The Federal Reserve began aggressive rate hikes, strengthening the dollar, while the eurozone economy slowed, and Italy’s political instability emerged. These factors collectively pushed the euro downward.

2022: The extreme test of the Russia-Ukraine conflict

In September 2022, the euro fell to 0.9536, a 20-year low. The special background during this period was: the Russia-Ukraine war caused energy prices to skyrocket, European natural gas and oil supplies were interrupted, recession expectations surged, and capital flowed back to the US in large amounts.

However, the situation reversed in the second half of the year. As international energy supply chains gradually adjusted, oil and gas prices fell, and the ECB continued to raise interest rates in July and September, ending 8 years of negative interest rates. The euro began to recover. Market pessimism about the euro’s trend was also revised upward.

The Economic Logic Behind the Euro’s 10-Year Trend

The euro’s trend is closely related to several core factors. First is interest rate differentials: when US interest rates are higher than eurozone rates, the dollar tends to strengthen. Second is economic growth comparison: the eurozone’s economic growth has been far below that of the US, which long-term constrains the euro’s appreciation potential. Third is risk sentiment: during geopolitical conflicts and financial crises, safe-haven funds tend to flow into the dollar. Fourth is central bank policy synchronization: differences between the Fed and ECB policies are the main drivers of short-term volatility.

Understanding these logics is essential to predicting the possible directions of the euro’s future trend.

Will the euro rise in the next 5 years?

Positive factors

The Fed enters a rate-cutting cycle: By the end of 2023, the Fed hinted at imminent rate cuts. Historical experience shows that US rate-cutting cycles usually last 3-5 years, during which the US dollar index tends to decline significantly. This provides long-term support for the euro. The ECB maintains relative tightening: Even if the Fed cuts rates, the ECB is likely to keep interest rates relatively high in the short term, narrowing the interest rate differential but not reversing it, thus maintaining the euro’s relative attractiveness. Stable energy prices: As energy markets stabilize, Europe no longer faces severe supply disruption risks, and concerns over corporate costs and economic recession gradually ease.

Risks

Weak economic growth: The eurozone’s annual growth rate is close to zero, with declining industrial competitiveness, making it difficult to compare with US economic momentum. Normalized geopolitical risks: The ongoing Russia-Ukraine war and escalating Middle East tensions mean any major conflict escalation could drive capital back into the dollar. Signs of manufacturing recession: The eurozone manufacturing PMI fell below 45, indicating a relatively pessimistic economic outlook for the next half year.

Investment conclusion

The euro has potential to rise over the next 5 years, but it won’t be smooth sailing. The most optimistic scenario is: in the first half of 2024, the Fed cuts rates as expected, the euro bottoms out and rebounds, with an annual increase of 5-8%. The most pessimistic scenario is: major geopolitical events trigger safe-haven flows into the dollar, causing the euro to face downward pressure again. The most likely middle path: the euro fluctuates between 1.05-1.20, showing slow appreciation.

Investment strategies for Taiwanese investors in the euro

Investment channels comparison

Bank foreign exchange trading: Suitable for conservative investors, with ample liquidity but higher transaction costs, usually only supporting long positions. CFD forex platforms: The most flexible option, supporting two-way trading (buying and selling), leverage, suitable for active investors. Small initial investments (e.g., starting from $50) have low thresholds but higher risks. Futures exchanges: Suitable for professional investors, with transparent trading rules but high capital and knowledge requirements. Securities firm agency: An option between banks and brokers, balancing safety and trading flexibility.

Practical tips

It is recommended to allocate in layers: conservative part through bank fixed-term euro purchases as a portfolio; aggressive part through CFD platforms at key support levels (e.g., around 1.05) for swing trading; set stop-loss below 0.98 and take-profit above 1.25, controlling individual trade risk at 2-3% of total capital.

Also, closely monitor Fed minutes, ECB decisions, eurozone unemployment rates, and PMI data. These releases often drive sharp euro fluctuations and are good entry points.

Summary

The euro’s 10-year cycle shows a typical pattern of “high → crisis → bottom → rebound → adjustment.” From 1.6038 to 0.9536 and back to 1.08, the euro has endured extreme tests but still retains vitality.

In the next 5 years, the Fed’s rate-cutting cycle offers upside expectations, but eurozone economic weakness and geopolitical risks are long-term constraints. Savvy investors should consider establishing partial positions near the bottom, setting reasonable stop-losses, and patiently waiting for opportunities when the dollar weakens. Whether euro investments profit depends not on predicting absolute directions but on mastering key data-driven signals and risk management.