Euro forecast against the dollar 2024-2025: Complete guide for Forex investors

Why is the EUR/USD pair the most important in the Forex market?

The euro/dollar represents the most traded currency parity worldwide, concentrating the largest volume of daily transactions in the foreign exchange markets. This pair emerged in 1999 when the euro replaced historic currencies such as the German mark, the Italian lira, and the French franc.

The size of this market is colossal. According to data from the Bank for International Settlements (BIS), the average daily volume in spot transactions reaches 2.2 trillion dollars, while the total Forex volume including futures and derivatives amounts to 7.5 trillion daily. This market depth results in relatively low volatility compared to other currency pairs, making long-term strategy planning easier.

The forecast for the euro-dollar in the coming years will be crucial for identifying investment opportunities, considering that the two largest economic powers—the European Union and the United States—converge.

Technical analysis: Where is the EUR/USD headed?

Chart patterns and key levels

The current configuration of the pair shows an ascending triangle in development, where the resistance line marks a critical level to determine the next move. The 50, 100, and 200-session moving averages currently show a lack of clear direction, oscillating between downward breaches and retracements, suggesting a consolidation phase.

The RSI indicator is in contraction territory without reaching oversold levels, while the DMI shows predominant bearish signals, although an immediate crossover could change the technical outlook.

EUR/USD forecast for 2024

Applying Fibonacci extensions to the technical analysis, a bullish target of 1.12921 is identified by the end of the year. This level would represent a favorable hypothesis for the euro, supported by specific macroeconomic factors of the period.

Outlook for 2025

The longer-term projection suggests possible highs around 1.21461 before experiencing a correction. Even in retracement scenarios, dynamic supports would be above 1.15, indicating a well-defined technical floor.

Key factor: The interest rate differential

The main element that will influence both currencies in 2024-2025 is the cycle of monetary policy easing in both the Federal Reserve (FED) and the European Central Bank (ECB).

After maintaining rates at historic highs (FED at 5.50% at the end of July 2023 and ECB at 4.50% in early September 2023), both institutions are in a pause before reductions. Statistically, the Fed has set the pace: in previous crises, the ECB has mirrored American moves with some time lag.

Estimates suggest the Federal Reserve will cut rates in December 2024 to the range of 4.50%-4.75%, and by December 2025 to 3.75%-4.00%. The ECB, on the other hand, would reach 4% in 2024 and 3% in 2025.

This dynamic suggests that the dollar will initially be more negatively affected, strengthening the euro. However, by 2025, an equalization could occur, allowing the dollar to recover. Monitoring inflation is crucial, as it determines the pace and magnitude of rate cuts.

Historical evolution of the EUR/USD pair

Since 2008, there has been a broad downward channel that began when the Fed brought rates to zero to combat the financial crisis, while the ECB maintained high rates.

The COVID-19 crisis created a boomerang effect: the United States implemented measures quickly, injecting 2 trillion dollars in stimulus. The euro/dollar rose from 1.0780 (March 25, 2020) to 1.2299 (December 31, 2020). Subsequently, the ECB’s TLTRO programs began to reduce this advantage.

Russia’s invasion of Ukraine in February 2022 worsened the European geopolitical situation. Although September of that year marked a trend reversal, there is currently strong resistance at 1.1255 that defines the present technical context.

Macroeconomic variables affecting both currencies

Elements that strengthen the USD

• Federal Reserve balance sheet reduction
• Interest rate hikes
• Repatriation of foreign corporate capital
• Financial crises (safe haven effect of the dollar)
• US GDP growth
• Favorable regulatory incentives

Elements that weaken the USD

• Recessions or local crises in the US
• Gradual abandonment of the dollar by emerging economies
• Expansion of the Fed’s balance sheet generating inflation
• Rate reductions
• Loss of confidence in the US economy

Factors supporting the EUR

• Rate hikes by the ECB
• Economic improvement in the Eurozone
• Reduction in overall unemployment
• Increased credit activity in the Eurosystem
• Growth of the combined GDP
• Contraction of monetary reserves

Elements pressuring the EUR

• Massive liquidity injections expanding the money supply
• Rate cuts
• Debt purchase programs (Grexit, post-COVID)
• Rising unemployment
• Geopolitical instability (energy crisis due to sanctions on Russia)

Price formation: A comprehensive perspective

The forecast for the euro-dollar depends on the complex interplay of these factors. A distinctive feature of the EUR/USD is its market depth, which limits abrupt fluctuations compared to exotic pairs.

It is essential to remember that the quote is formed by its own merits or the faults of others. An economy in the Eurozone without changes can depreciate if a US crisis erupts, or vice versa. At each moment, the positioning criterion will determine whether it is better to adopt a long or short stance.

Currency investment methods

For retail investors, there are three main avenues:

Investment funds: Less efficient option, as it invests in monetary instruments denominated in a specific currency without taking advantage of parity fluctuations.

Futures on EUR/USD: Forward contracts where gains are made if the exchange rate moves favorably according to the forecast within the estimated period.

Contracts for difference (CFD): More accessible method, allowing exposure to relevant positions with reduced capital thanks to leverage. A standard Forex lot represents 100,000 units of the base currency, and exchange movements are usually mild, making leverage useful for intraday and short-term trading.

Risk considerations

Despite the forecasts presented, unpredictable variables must be considered. “Black swan” events can impact globally or affect specific regions. Countries experience different cycles, so problems in one area can present opportunities in another.

Although EUR and USD will maintain their dominant position in Forex, volatility will not be a specific problem if exposure is properly calibrated and risk management principles are followed.

Conclusion: EUR/USD profitability in 2024-2025

Investing in the EUR/USD pair offers attractive features: low intrinsic volatility, enormous liquidity, and opportunities in both bullish and bearish periods. Monitoring macroeconomic developments, especially the monetary decisions of the Fed and ECB, will be decisive.

Historically, US indicators anticipate the movements of the European Central Bank, creating predictable patterns. With solid technical analysis and constant monitoring of macroeconomic expectations, the euro-dollar forecast for these years provides a well-founded basis for making informed currency investment decisions.