EUR/USD 2024-2025: What does the forecast hold for the main currency pair?

The euro/dollar currency pair remains the most traded in the world of Forex. With an average daily volume in the spot market of $2.2 trillion according to the Bank for International Settlements (BIS), it accounts for approximately 30% of total global currency trading. Understanding its behavior is key for any trader looking to position themselves in financial markets over the coming years.

The EUR/USD pair: Anatomy of the most important asset in Forex

The euro and the US dollar are the currencies of the two largest economic powers in the world. Its quote, which began in 1999 with the introduction of the euro, replaced historically significant currencies such as the German mark, the Italian lira, and the French franc. This convergence of economic power has made the pair the undisputed benchmark of the Forex market.

In terms of volume, the currency market moves approximately $7.5 trillion daily when including forwards and derivatives. The depth of the euro/dollar market is so significant that movements tend to be more stable than in other currency pairs, making it attractive for traders seeking lower volatility.

Technical analysis of EUR/USD: What do the charts say?

The current chart structure of the pair shows an ascending triangle, where the main resistance level plays a decisive role in the future direction. However, technical indicators send mixed signals that warrant a deeper analysis.

Moving averages tell a story of uncertainty. At the levels of the 50, 100, and 200 sessions, there is no clear trend. The euro/dollar has occasionally broken below these lines, but has also shown significant sideways movements in recent weeks. This lack of direction suggested by the averages contrasts with the price structure pointing upward.

The Relative Strength Index (RSI) is in a contracting territory, without reaching oversold levels, indicating that the asset is not severely depressed. Meanwhile, the Directional Movement Index (DMI) shows a clearly bearish trend, although there is a possibility of a crossover in the short term that could reverse this signal.

Euro/dollar forecast for 2024: The bullish scenario

Using Fibonacci projection, a favorable scenario would suggest that the EUR/USD could reach the level of 1.12921 before the end of 2024. This target is based on a hypothesis that favors euro strength in the coming months.

This projection is supported by the idea that monetary policies will begin to loosen in both regions, albeit at different paces and magnitudes.

Euro/dollar forecast for 2025: Consolidation and reverberation

Extending the analysis into 2025, the most probable projection suggests that the pair would peak around 1.21461 before experiencing a price contraction. However, this decline should not significantly break below the level of 1.15, indicating a consolidation within a more defined range than currently.

The major catalyst: The interest rate race

Beyond technical indicators and chart patterns, there is a macroeconomic factor that will dominate the euro/dollar dynamics in 2024 and 2025: the trajectory of interest rates in both regions.

The Federal Reserve (FED) and the European Central Bank (ECB) have frozen rates at historic levels. The Fed kept them at 5.50% at the end of July 2023, while the ECB stood at 4.50% in September of the same year. Now, both institutions are in a pause phase ahead of what is expected to be a cycle of rate cuts.

Historically, the Fed sets the pace. US rate cuts tend to precede European ones, as occurred during the 2008 financial crisis. Macroeconomic projections estimate that the Fed will cut rates in December 2024 to the range of 4.50%-4.75%, with further cuts in December 2025 bringing them to the range of 3.75%-4.00%. The ECB, in turn, is expected to be at 4% in December 2024 and 3% in December 2025.

This rate differential is crucial: if the Fed is the first to cut aggressively, the dollar could weaken relatively, benefiting the euro. However, by 2025, if both institutions converge in their policies, the euro’s appreciation could lose momentum.

Factors shaping the pair’s quote

The euro/dollar forecast cannot be understood without considering the multiple factors influencing both currencies:

Elements that strengthen the USD:

• The reduction of the Federal Reserve’s balance sheet
• Increases in interest rates
• Repatriation of capital from US companies operating abroad
• Capital inflows during global financial crises (safe-haven demand)
• US GDP growth

Elements that weaken the USD:

• US economic recessions
• Gradual abandonment of the dollar by emerging powers
• Excessive monetary expansion (Fed balance sheet increase)
• Rate cuts
• Loss of confidence in US economic solidity

Elements that strengthen the EUR:

• Rate hikes by the ECB
• Economic improvement in the Eurozone
• Unemployment reduction (though heterogeneous among members)
• Increased activity within the Eurosystem
• Growth of aggregate GDP
• Contraction of monetary reserves

Elements that weaken the EUR:

• Massive liquidity injections and monetary expansion
• Rate cuts
• Mass sovereign debt purchase programs
• Increases in unemployment rates
• Geopolitical shocks (such as the energy crisis stemming from the conflict in Ukraine)

Historical evolution: Lessons from the past

Since 2008, the pair has operated within a broad downward channel. This secular movement originated when the Fed cut rates to 0% to combat the financial crisis, while the ECB maintained a more restrictive stance.

The COVID-19 pandemic caused a boomerang effect: the US implemented massive fiscal measures (including a $2 trillion package with just 800 reported deaths), causing the EUR/USD to jump from 1.0780 on March 25, 2020, to 1.2299 on December 31 of the same year. Subsequently, the implementation of the ECB’s TLTRO programs began to erode this advantage.

The turning point came in February 2022 with the invasion of Ukraine. Although a trend reversal occurred in September, the pair now faces strong resistance at the level of 1.1255.

How to trade EUR/USD: Available options

For retail investors, there are mainly three channels to expose themselves to the forecast fluctuations of euro/dollar:

Investment funds: Although accessible, they generally do not capitalize on short-term variations but invest in monetary instruments denominated in the target currency.

EUR/USD futures: These forward contracts allow gains if the exchange rate moves favorably within the agreed timeframe. They offer greater transparency in costs but require significant capital.

Contracts for Difference (CFD): Represent the most flexible option for retail traders. With leverage, they allow access to relevant positions with reduced capital. One Forex lot represents 100,000 units of the base currency, making leverage especially useful to capture movements that would otherwise be imperceptible in percentage terms. CFDs allow both long and short operations, being particularly useful for hedging strategies or short-term trading.

Risks and considerations

Although the euro/dollar forecasts provide valuable guidance, no projection is infallible. Geopolitical black swans, unexpected changes in monetary policy, or surprising economic data can dramatically alter the pair’s trajectory.

The depth of the EUR/USD market ensures that volatility remains relatively contained compared to exotic pairs, but it does not eliminate risk. Properly calibrating position size and establishing clear stop-loss levels is essential.

Conclusion: Is EUR/USD profitable in 2024-2025?

The euro/dollar forecast for the coming years points to an asset that will continue to be the pillar of the Forex market. Its relative low volatility and exceptional liquidity make it an attractive vehicle for traders seeking exposure to the currencies of the world’s leading economies.

However, profitability will depend less on the overall direction (which, according to technical and fundamental analyses, points toward 1.12921 in 2024 and 1.21461 in 2025) and more on the trader’s ability to synchronize their positions with interest rate cycles and macroeconomic expectation changes.

The euro and the dollar will remain the captains of Forex. The key is to know how to read when the tide is rising or falling.