EUR/USD 2024-2025: What to Expect from the World's Most Traded Currency Pair?

The EUR/USD Pair: Market Size and Global Relevance

When we talk about the euro and the dollar, we refer to the two currencies that dominate international foreign exchange markets. Their importance lies in representing the economies of two powers: the European Union and the United States.

According to data from the Bank for International Settlements (BIS), the daily trading volume in the spot forex market reaches approximately $2.2 trillion, while including forwards and derivatives, the figure rises to $7.5 trillion daily. The EUR/USD pair leads these transactions by a wide margin.

The euro entered the forex market in 1999, replacing historic currencies such as the German mark and the Italian lira. Since then, its exchange rate against the dollar has become the main indicator of economic health between the Eurozone and the United States.

Technical Analysis of EUR/USD: Mixed Signals on the Horizon

Currently, the EUR/USD pair shows characteristics of an ascending triangle, with a key resistance at the 1.1255 level. However, technical indicators paint a complex picture.

The moving averages at 50, 100, and 200 sessions do not reveal a clear trend at this moment. The asset has been oscillating without a defined direction in recent weeks, occasionally breaking bearish signals.

Meanwhile, the RSI index is in contraction territory without reaching oversold levels, while the DMI shows bearish directionality, though with the possibility of imminent crossovers.

Price Outlook: EUR/USD Towards 2024 and 2025

The Fibonacci extension suggests different scenarios depending on the time horizon:

For 2024: Under a favorable scenario for the euro, the first price target would be around 1.12921 by year-end. This level would represent a progressive recovery of the pair.

For 2025: The most probable forecast indicates the pair reaching peaks near 1.21461 before experiencing a correction. If this correction materializes, the lows should not break below 1.15.

The True Driver: Monetary Policies of the FED and ECB

The key to understanding the EUR/USD forecast for 2024-2025 lies in the cycle of monetary policy easing in both the United States and Europe.

The FED froze its interest rates at 5.50% at the end of July 2023, while the ECB did so at 4.50% in September of the same year. We are currently in a pause phase before a potential decline.

Estimates suggest the FED will cut rates in December 2024 toward the 4.50%-4.75% range, and in December 2025 toward 3.75%-4.00%. The ECB, on the other hand, would be at 4% in December 2024 and 3% in December 2025.

Crucial implication: The FED tends to be a pioneer in its moves, while the ECB reacts afterward. Historically, this happened during the 2008 financial crisis and repeated during the COVID-19 pandemic. If this pattern continues, the dollar could initially face more pressure, which would favor euro appreciation.

Historical Evolution of EUR/USD: Lessons from the Past

Since 2008, the pair has experienced a long-term downward channel originating when the FED cut rates to 0% to combat the financial crisis, while the ECB maintained high rates.

The COVID-19 crisis caused a boomerang effect. The United States responded quickly with massive stimulus ($2 trillion package with just 800 reported deaths), pushing the EUR/USD from 1.0780 in March 2020 to 1.2299 in December of the same year.

The subsequent implementation of the ECB’s TLTRO programs to rescue European economies moderated that advantage. The turning point came in February 2022 with the invasion of Ukraine, which worsened geopolitical instability in Europe, leading to a trend reversal in September 2022.

Fundamental Factors Shaping EUR/USD

Favorable for the dollar:

• Federal Reserve balance sheet reductions
• Interest rate hikes
• Repatriation of capital from abroad
• Financial crises (the USD as a safe-haven asset)
• US GDP growth

Unfavorable for the dollar:

• Local recessions in the US economy
• Gradual abandonment of the dollar by emerging economies
• Excessive monetary expansion by the FED
• Rate cuts
• Loss of confidence in US assets

Favorable for the euro:

• Rate hikes by the ECB
• Improvement of Eurozone economies
• Unemployment reduction
• Aggregate GDP growth
• Contraction of monetary reserves

Unfavorable for the euro:

• Massive liquidity injections
• ECB rate cuts
• Debt purchase programs (QE)
• Unemployment increases
• Geopolitical instability (energy crisis due to Ukraine)

Investment Mechanisms in EUR/USD

For retail investors, there are three main avenues:

1. Investment Funds: Less recommended option, as they do not capitalize on fluctuations but only on monetary instruments denominated in specific currencies.

2. EUR/USD Futures: Forward contracts where profit depends on the exchange rate being favorable to the forecast at the set date.

3. Contracts for Difference (CFD): The most practical alternative. Leverage allows access to significant positions of the pair with limited capital. A standard forex lot equals 100,000 units of the base currency. Since currency movements are usually mild, CFDs are especially useful for intraday and short-term trading.

Final Considerations: Is EUR/USD Profitable in 2024?

Investing in EUR/USD offers attractive features for traders and investors: relatively low volatility (due to its market depth) and competitive spreads with specialized brokers.

History shows that US economic indicators reliably anticipate subsequent ECB decisions. Monitoring the rate cycle and inflation data will be crucial to calibrate correct positions.

However, we should not rule out the emergence of “black swans” — unforeseen events of global or regional scope — that could significantly alter the EUR/USD forecast. Prudence in sizing risk and leverage remains essential, regardless of current technical or macroeconomic outlooks.