Euro-Dollar Exchange Rate Forecast 2024-2025: Technical Analysis and Macroeconomic Outlook

Why is EUR/USD the Heart of the Forex Market?

The euro-dollar exchange rate forecast stands as one of the most relevant topics for traders and financial analysts. This currency pair represents the meeting of the two largest global economies: the European Union and the United States.

Since its introduction in 1999, when the euro replaced major currencies such as the German mark and the French franc, the EUR/USD quote has become the most traded pair in the Forex market. According to data from the Bank for International Settlements (BIS), the daily volume of spot market transactions reaches 2.2 trillion dollars, while including derivatives and forwards, the global Forex market moves 7.5 trillion dollars daily.

This magnitude is precisely because the euro-dollar adds the majority of transaction volume. The market depth ensures that price movements are smoother and more predictable compared to other currency pairs with lower liquidity.

Macroeconomic Dynamics: The Decisive Factor for 2024-2025

The most likely forecast for the euro-dollar exchange rate in the next two years will fundamentally depend on the monetary policies of both regions. After maintaining interest rates frozen for months — the FED at 5.50% at the end of July 2023 and the ECB at 4.50% in early September 2023 — we are now in a critical transition phase.

Estimates from relevant financial institutions suggest that the FED will start to cut rates in December 2024, reaching the range of 4.50%-4.75%, and will continue lowering in December 2025 toward 3.75%-4.00%. Meanwhile, the ECB is likely to reach 4% in December 2024 and 3% in December 2025.

Historically, the FED sets the tone that the ECB follows afterward. This pattern was also observed during the 2008 financial crisis, when the U.S. reserve was the first to cut rates while the ECB maintained a more restrictive stance. A favorable interest rate differential usually strengthens the currency offering higher yields, but in this case, the more aggressive reduction by the FED could paradoxically weaken the dollar.

Technical Analysis: Bullish Triangle and Key Levels

Looking at the technical structure of the euro-dollar, the emerging pattern is an ascending triangle with clearly marked resistance. Technical indicators send mixed signals: the 50, 100, and 200-session moving averages do not reveal a clear trend, with the pair breaking signals downward but fluctuating notably in recent weeks.

The RSI remains in contraction territory without reaching oversold levels, while the DMI shows a bearish directionality that could reverse soon. This confluence of signals suggests that the market is positioning for significant movements.

According to Fibonacci extension projections, a bullish scenario would present the first target level at 1.12921 by the end of 2024. In 2025, the quote could approach 1.21461 before experiencing a correction that, in any case, should not significantly break below 1.15.

Historical Review: From Financial Crises to Geopolitical Conflicts

The historical context is fundamental to understanding the euro-dollar forecast. Since 2008, the pair has moved within a long-term bearish channel, initiated when the FED reduced rates to 0% to combat the financial crisis while the ECB maintained high rates.

The COVID-19 pandemic generated a boomerang effect. The United States, acting more quickly, implemented massive stimulus — remember the 2 trillion dollar package approved with just 800 deaths — which pushed the euro-dollar from 1.0780 to 1.2299 between March and December 2020. However, the ECB’s TLTRO programs gradually eroded this advantage.

The turning point came in February 2022 with the invasion of Ukraine. The geopolitical crisis disproportionately impacted Europe, causing an energy crisis and forcing sanctions against Russia. Although September 2022 marked a trend reversal, there is currently strong resistance at 1.1255 that contains the bullish momentum.

Structural Factors Shaping the Euro-Dollar

Elements Favorable to USD

The strength of the dollar is supported by several pillars: the Federal Reserve’s balance sheet reduction decreases dollar supply, interest rate hikes historically appreciate the currency, repatriation of capital by U.S. corporations injects demand, and the dollar’s role as a “safe-haven asset” benefits it during financial crises. Additionally, U.S. GDP growth and favorable regulatory incentives support its value.

Elements Adverse to USD

Local recessions, the gradual abandonment of the dollar by emerging economies like China, increases in the FED’s balance sheet causing inflation, rate cuts, and loss of confidence in the U.S. economy can weaken the greenback.

Elements Favorable to EUR

Rate hikes by the ECB, economic improvement in the eurozone (although moderate as it is a bloc of 20 countries), reduction in unemployment, increased banking activity of the Eurosystem, and growth of the aggregate GDP support the euro.

Elements Adverse to EUR

Massive liquidity injections by the ECB, rate reductions, debt purchase programs (especially post-Greece and post-COVID), increases in unemployment, and geopolitical instability such as the Ukrainian energy crisis erode the euro.

Methods to Access the EUR/USD Forecast

For retail investors, there are three main ways of exposure:

Investment Funds: Less recommended option, as they generally invest in monetary instruments denominated in specific currencies without taking advantage of price fluctuations.

Futures on EUR/USD: Forward contracts that allow gains if the future exchange rate aligns with the forecast.

CFD on euro-dollar: Optimal method for retail traders. Leverage allows access to relevant positions of the pair with limited capital, considering that one Forex lot equals 100,000 units. Since Forex movements are usually moderate, leverage is particularly useful for intraday and short-term trading. It also facilitates hedging long positions with short positions during temporary corrections.

Considerations on Profitability and Uncertainty

The profitability of the euro-dollar as an investment instrument depends on multiple factors. The pair offers relatively low volatility compared to emerging market currency crosses, thanks to the exceptional depth of the Forex market. However, black swan events — unexpected financial crises, geopolitical conflicts, or changes in economic policy — can drastically alter forecasts.

It is essential to carefully calibrate any operation, considering that the economies of the eurozone evolve differently. A problem in one geographic area can present opportunities in another, complicating the one-dimensional reading of aggregated indicators.

Summary: The Euro-Dollar Forecast as a Fundamental Bet

The euro-dollar forecast for 2024-2025 points to a scenario where the first half of the period would see stability or slight appreciation of the euro, driven by slower rate reductions by the ECB. In 2025, a convergence of rates between the FED and the ECB could allow for a more pronounced appreciation, reaching cyclical highs before experiencing natural corrections.

The true euro-dollar forecast must be based on constant monitoring of macroeconomic indicators, especially inflation and monetary policy expectations. Optimists with the euro will take long positions in this pair or short positions in USD/EUR, while those favoring the dollar will adopt the opposite strategy.

What remains certain is that the euro-dollar will continue to be the premier Forex asset, offering sustained opportunities through controlled volatility and unmatched market depth among currency pairs.