EUR/USD Outlook 2024-2025: Is it worth betting on the euro against the dollar?

In this analysis, we will focus on the Euro-Dollar projection for 2024 and 2025, two crucial years for the behavior of the most traded parity in global currency markets. It is the pairing between the two dominant currencies in the global economy, generating unprecedented trading volume.

The importance of EUR/USD in the Forex market

Since its creation in 1999, the euro replaced former European currencies such as the German mark, the Italian lira, and the French franc, establishing itself as the reference currency of the European Economic Area. From that moment, the EUR/USD pair became the most relevant currency pair on the planet, bringing together the economies of two superpowers: the European Union and the United States.

The trading volume reflects this prominence. According to data from the Bank for International Settlements (BIS), which groups banking institutions representing 95% of the global GDP, the spot market generates an average daily volume of 2.2 trillion dollars. Including derivatives, forwards, and other products, the total global Forex market reaches 7.5 trillion dollars daily. These figures clearly illustrate how deep and liquid euro-dollar trading is.

EUR/USD forecast for 2024-2025

Expected Scenario for 2024

Based on technical analysis using Fibonacci extensions, the euro-dollar could reach the level of 1.12921 as the first target during this year, assuming a favorable scenario for the European currency. This movement responds to bullish triangulation patterns observed in historical charts.

However, analysis of additional technical indicators shows contradictory signals. The 50, 100, and 200-session moving averages do not reveal a clear trend at this moment. The Relative Strength Index (RSI) is in contraction territory without reaching oversold levels, while the Directional Movement Index (DMI) indicates a bearish direction, although it could change soon.

Projection for 2025

Extending the analysis horizon, the euro-dollar could approach highs around 1.21461 during 2025 before experiencing a price contraction. Even in a recession scenario, the parity is not expected to break significantly below 1.15, suggesting a relatively contained range for fluctuations.

The decisive role of monetary policy

The most decisive factor for euro-dollar behavior in 2024-2025 will be the gradual easing of monetary policies in both the United States and the Eurozone. After holding rates steady for several months — the Federal Reserve at 5.50% (since late July 2023) and the European Central Bank at 4.50% (since early September 2023) — both institutions are in a pause phase before rate cuts.

Data indicates that the Fed has historically set the tone. During the previous financial crisis and currently, the ECB mirrors the behavior of the US monetary authority. Estimates suggest that the Federal Reserve will cut rates in December 2024 to the range of 4.50%-4.75%, reaching 3.75%-4.00% by December 2025. The ECB would follow a similar but delayed trajectory, reaching 4% in December 2024 and 3% in December 2025.

This suggests that the dollar will face more pronounced downward pressure than the euro in 2024, favoring euro appreciation. However, by 2025, the differentials may balance out, and the dollar could regain ground, especially if the US economy shows greater resilience than the Eurozone.

Factors driving and restraining each currency

Elements strengthening the USD

• Reduction of the Fed’s balance sheet through monetary normalization operations
• Increase in interest rates, attracting international capital
• Repatriation of US corporate earnings from abroad
• Safe-haven asset function during financial crises, increasing demand for dollars in central banks
• US GDP growth
• Regulatory incentives to hold positions in the currency

Elements weakening the USD

• Economic recession or localized crises in the United States
• Growing diversification of reserves by strong economies (such as China)
• Increase in the Fed’s balance sheet causing inflation
• Falling interest rates
• Erosion of confidence in the strength of the US economy

Catalysts supporting the EUR

• ECB rate hikes
• Economic recovery of Eurozone member countries
• Decrease in unemployment in the euro area
• Greater activity in interbank transactions within the Eurosystem
• Growth of aggregate GDP
• Control of the money supply by the central bank

Negative pressures on the EUR

• Liquidity expansions through massive money injections
• Rate cuts that depreciate the unit value
• Massive sovereign debt purchase programs
• Increases in unemployment (although moderate due to the EU structure)
• Geopolitical tensions, such as the energy crisis stemming from the Ukraine conflict

Historical evolution and current context

Since 2008, the euro-dollar has moved within a broad downward channel. This phenomenon began when the Fed cut rates to zero to combat the financial crisis while the ECB maintained a restrictive stance. The COVID-19 crisis created a boomerang effect: the US implemented swift measures and injected 2 trillion dollars, pushing the euro-dollar from 1.0780 on March 25, 2020, to 1.2299 on December 31 of the same year.

Subsequent implementation of the ECB’s TLTRO programs moderated those European gains. The turning point arrived in February 2022 with the invasion of Ukraine, which worsened the European geopolitical situation. Although a trend reversal was recorded in September 2022, the parity currently faces strong resistance at 1.1255.

Methods to invest in EUR/USD

For retail investors, there are three main avenues:

1. Investment funds: A passive option that does not capitalize on fluctuations but invests in monetary instruments. Generally less profitable for short-term speculation.

2. EUR/USD futures: Forward contracts that allow profit if the exchange rate at maturity is favorable. Require significant initial capital and margin management.

3. CFDs on EUR/USD: The most accessible alternative, allowing access to relevant positions with reduced capital thanks to leverage. A standard lot in Forex equals 100,000 units of the base currency. Price movements are usually contained, making leverage especially useful for intraday and short-term trading.

With CFDs, it is possible to take both long positions to benefit from rises and hedge positions with shorts during temporary corrections.

Market volatility and depth

The euro-dollar is characterized by extraordinary depth due to its status as the most traded pair globally. This results in smoother price movements compared to exotic pairs with lower volume, such as the Turkish lira vs. the Australian dollar.

Price formation responds to factors specific to each economy or changes in the other zone. That is, even without changes in the eurozone, a US crisis would depreciate the dollar against the euro. The quote is established by its own merits or others’ demerits, offering opportunities in both directions.

Risks to consider

Although forecasts for EUR/USD suggest defined ranges, potential black swan events exist. Unexpected geopolitical events, sudden policy changes, or sector-specific crises can significantly alter projections.

Likewise, different economies follow different rhythms: a problem in one geography could be a solution in another. EUR/USD volatility has historically remained moderate, but properly sizing positions remains essential.

Conclusion: Is there profitability in 2024-2025?

Investing in EUR/USD, the world’s leading currency asset, offers attractive features for traders: low historical volatility, exceptional liquidity, and trading opportunities both upward and downward. The macroeconomic scenario for 2024-2025 appears favorable for the euro in the short term, with US monetary easing as the main driver.

History shows that US indicators reliably precede the ECB’s subsequent behavior, enabling more accurate projections. To maximize profitability, it is crucial to constantly monitor interest rate developments, inflation data, and geopolitical news that could reshape market expectations for both economies.