EUR/USD: Euro Dollar outlook and forecast for the coming years

The Most Important Currency Pair in the Global Market

The euro and the dollar represent the two most prominent currencies in the global financial markets. Their trading pair, EUR/USD, consistently leads in trading volume in the foreign exchange market. Statistics from the Bank for International Settlements (BIS), which groups banking institutions responsible for 95% of the global GDP, confirm that the average daily spot trading volume reaches $2.2 trillion. Including derivatives and forward contracts, the total daily Forex volume amounts to $7.5 trillion.

Since its introduction in 1999, when the euro began circulating in the European Economic Area, the EUR/USD pair has established itself as the most traded instrument on the planet. This event marked the end of historic currencies such as the Italian lira, the French franc, and the German mark.

Technical Dynamics and Outlook for EUR/USD

The current configuration of EUR/USD shows interesting patterns from a technical analysis perspective. The pair is within an ascending triangulation structure, where resistance acts as the upper boundary of this movement.

The 50, 100, and 200-session moving averages currently present conflicting signals. Although the euro/dollar occasionally breaks below these averages, it has maintained significant oscillations in recent weeks without a definitive direction.

The Relative Strength Index (RSI) places the pair in a contraction territory, though not reaching extreme oversold levels. Meanwhile, the Directional Index (DMI) shows clear bearish pressure, although the possibility of short-term directional crosses remains open.

Fibonacci Analysis and Projections for 2024 and 2025

Applying Fibonacci extensions, the most probable euro-dollar forecast for 2024 envisions an initial target at 1.12921, under a favorable scenario for the European currency. This hypothesis is supported by macroeconomic factors which we will detail later.

Extending the horizon to 2025, the analysis suggests that the pair could reach highs around 1.21461 before experiencing a correction. This decline should not break below the 1.15 level, according to current technical projections.

Monetary Policies: The Driving Force of EUR/USD

The key factor influencing the pair’s evolution in 2024 and 2025 lies in the simultaneous easing of monetary policies in the United States and the Eurozone. After holding their benchmark rates steady at 5.50% (FED, July 2023) and 4.50% (ECB, September 2023), both institutions are in a pause phase before easing.

Historically, the Federal Reserve sets the pace that the European Central Bank follows. Estimates project that the FED will cut rates in December 2024 to the 4.50%-4.75% range, with further reductions in 2025 heading toward 3.75%-4.00%. The ECB is expected to reach 4% by December 2024 and 3% by December 2025.

Since the FED is likely to be the first to start its rate-cut cycle, the dollar could experience downward pressure, which would theoretically strengthen the euro. However, by 2025, the rate gap could close, allowing for a potential rebound of the dollar. Everything will depend on how inflation evolves, a critical variable that determines the timing and magnitude of rate cuts.

Ways to Invest in EUR/USD

Retail investors have three main options to trade this pair:

Investment Funds: Less recommended, as they seek exposure to monetary instruments denominated in certain currencies, not taking advantage of exchange rate fluctuations.

Futures Contracts: Allow profit when the exchange rate moves according to the prediction made within the specified period.

CFD on EUR/USD: The most efficient mode for retail investors. Leverage enables access to relevant positions with limited capital, considering that a standard lot equals 100,000 units of the base currency. Since Forex movements are moderate, CFDs facilitate intraday and short-term trading, as well as hedging long positions through short positions during temporary declines.

Factors Supporting or Pressuring Each Currency

Factors Strengthening the Dollar:

• Federal Reserve balance sheet reduction
• Interest rate increases
• Repatriation of profits by multinational companies
• Global financial crises (safe haven)
• US GDP growth

Factors Weakening the Dollar:

• Domestic economic recessions
• Central banks diversifying reserves into other currencies
• Balance sheet expansion and excessive monetary issuance
• Interest rate reductions
• Loss of confidence in the US economy

Factors Strengthening the Euro:

• ECB rate hikes
• Improvement in Eurozone economies (though diffuse among 20 countries)
• Reduction in aggregate unemployment
• Increased banking activity within the Eurosystem
• European GDP growth

Factors Weakening the Euro:

• Massive liquidity injections
• Cuts in benchmark rates
• Debt purchase programs
• Rising unemployment
• Geopolitical instability (such as the energy crisis due to Ukraine)

Price Formation and Volatility

The confluence of these elements generates multiple possible scenarios. The extreme depth of EUR/USD — as the most traded pair on the planet — results in smoother price movements compared to minor pairs. The quote responds to both its own merits and external detriments: a stable Eurozone economy can see the euro appreciate simply due to crises in the United States.

Optimistic investors regarding the euro take long positions in EUR/USD or short positions in USD/EUR. Those favoring the dollar do the opposite.

Historical Perspective: from 2008 to Present

Since 2008, the EUR/USD pair has remained within a long-term downward channel. This pattern began when the FED cut rates to 0% to combat the financial crisis, while the ECB maintained a more restrictive stance.

The COVID-19 pandemic produced a boomerang effect. The US implemented stimulus measures rapidly: with just 800 deaths recorded, the government approved a $2 trillion package. EUR/USD rose from 1.0780 (March 25, 2020) to 1.2299 (December 31, 2020).

The ECB’s TLTRO programs, aimed at rescuing European economies, gradually reduced that advantage. The real break came in February 2022 with the invasion of Ukraine, worsening the European geopolitical situation. Although September 2022 marked a temporary reversal, there is currently strong resistance at 1.1255.

Risks and Final Considerations

No forecast is an absolute guarantee. Unexpected events (black swans) can affect globally or impact specific regions differently. Countries face different dynamics, so problems in one area can present opportunities in another.

The euro and the dollar will continue to be the main protagonists in the currency market, so volatility will not be a distinctive risk. However, it is essential to properly calibrate the size of each position.

Investing in EUR/USD is a solid bet given its low inherent volatility and market depth. Working with reliable platforms and competitive commissions, investors can capitalize on the euro-dollar forecast through rigorous technical analysis combined with monitoring macroeconomic indicators, particularly monetary policy decisions that historically show predictable patterns between the Federal Reserve and the European Central Bank.