Evolution and forecast of the euro/dollar pair 2024-2025: Is it worth investing?

Why is the euro/dollar the most important asset in currencies?

The EUR/USD pair represents the convergence of the two largest global economic powers: the European Union and the United States. Since its introduction in 1999, this instrument has established itself as the highest volume traded in the foreign exchange markets worldwide.

The figures from the Bank for International Settlements (BIS) are compelling: the average daily volume in the spot market reaches $2.2 trillion, while including forwards and derivatives, the total global Forex volume stands at $7.5 trillion daily. This magnitude explains why the evolution of the euro/dollar is fundamental to understanding the global currency dynamics.

EUR/USD forecast for 2024: Where is it headed?

Technical charts show an ascending triangle pattern in EUR/USD, with clear resistance levels at the upper bounds. Using Fibonacci extension analysis, analysts project that the first price target by the end of 2024 could be around 1.1292, assuming a favorable scenario for the euro.

However, technical indicators send mixed signals. The 50, 100, and 200-session moving averages do not indicate a clear trend, with the pair showing sideways movements in recent weeks. The RSI remains in a neutral territory without reaching oversold levels, while the DMI shows a bearish directionality, though with a possibility of crossovers soon.

The forecast for 2025: higher volatility expected

Extending the analysis into 2025, the most probable projection suggests that the euro/dollar could reach highs near 1.2146 before experiencing a price correction. This retracement, in any case, should not significantly break below the supports located at 1.15.

The real driver: Central bank monetary policy

Beyond technical analysis, the decisive factor that will shape the euro/dollar’s evolution in this biennium will be the start of monetary policy easing in both the United States and the Eurozone. After maintaining rates at elevated levels —the Federal Reserve at 5.50% at the end of July 2023 and the European Central Bank at 4.50% in early September 2023— we are in a pause stage before rate cuts.

Market expectations indicate that the Federal Reserve will begin rate cuts in December 2024, moving toward the 4.50%-4.75% range, and continuing in December 2025 toward the 3.75%-4.00% range. The ECB, for its part, would follow a similar trajectory but with some temporal lag, reducing its rates to 4% in December 2024 and to 3% in 2025.

Historically, the Federal Reserve sets the tone that the European Central Bank later follows, a pattern that was replicated during the 2008 financial crisis. This US monetary leadership suggests that dollar depreciation is the most likely short-term scenario, benefiting the euro.

Macroeconomic factors driving the forecast

Favorable dynamics for the euro

• Interest rate adjustments: When the ECB raises its interest rates, the EUR naturally appreciates
• Regional strengthening: Improvements in economic indicators in the Eurozone, though moderate due to the heterogeneity of its 20 members, support the single currency
• Labor market: Reductions in European unemployment, though with significant variations between countries
• Credit activity: Increased dynamism in banking operations within the Eurosystem

Elements pressuring the euro

• Liquidity injections: Massive monetary support programs dilute the money supply
• Rate reductions: When the ECB lowers its key rates, the currency depreciates
• Public debt purchases: Sovereign bond purchase programs, historically during the euro crisis and post-COVID-19 pandemic
• Geopolitical tensions: The war in Ukraine has amplified European energy costs, weakening regional economic stability

Support for the dollar

• Attractive yields: Federal Reserve rate hikes strengthen demand for USD-denominated assets
• Safe haven position: During global crises, the dollar becomes the preferred safe asset
• Repatriation of capital: US corporations transfer profits back home, generating demand for local currencies
• Economic performance: US GDP growth directly underpins the value of the greenback

Historical context: How did we get here?

Since 2008, EUR/USD has traded within a broad downward channel. The financial crisis led the Federal Reserve to cut rates to 0% to stimulate the economy, while the European Central Bank maintained more restrictive positions, creating a divergence favorable to the dollar.

The COVID-19 pandemic temporarily reversed this dynamic. The US, with its characteristic pragmatism, implemented massive fiscal stimuli —the $2 trillion package approved under the Trump administration was an example— which pushed the euro/dollar from 1.0780 on March 25, 2020, to 1.2299 by year-end. However, the ECB’s (TLTRO) economic rescue programs began to compress this advantage.

The turning point came in February 2022 with the invasion of Ukraine, which accelerated the European geopolitical crisis. Although there was a trend reversal in September 2022, currently EUR/USD faces a significant resistance at 1.1255.

Options to participate in the euro/dollar evolution

Investment funds

Allow indirect exposure to currency differences, though offering less flexibility than other instruments.

Currency futures

Forward contracts that allow gains when the exchange rate moves favorably to the forecast, requiring more capital and technical knowledge.

EUR/USD CFDs

The most accessible option for retail investors, offering leverage that enables relevant positions with limited capital. Remember that a standard Forex lot equals 100,000 units of the base currency. Since currency movements tend to be moderate, leverage is useful for intraday and short-term operations.

Considerations on risks and volatility

Despite the forecasts presented, no prediction is an absolute certainty. Unexpected events —black swans— can drastically alter the expected evolution of the euro/dollar. The asymmetric nature of global economies means shocks in one region can produce contradictory effects in another.

The depth of the EUR/USD market provides a significant advantage: being the most traded pair, its price movements tend to be less volatile compared to exotic low-volume pairs. Still, it is essential to properly calibrate the size of each position according to individual risk tolerance.

Is investing in euro/dollar profitable in 2024-2025?

Investing in EUR/USD offers attractive features for currency market participants: relatively low volatility, competitive spreads, and leverage opportunities. The forecast of rate cuts by the Federal Reserve, combined with the prolonged maintenance of high rates by the ECB, suggests a favorable scenario for the euro in the short term.

However, the true profitability will depend on the ability to correctly interpret macroeconomic developments versus market expectations. Keeping a close watch on central bank statements, inflation data, and economic activity indicators will be crucial. The history of this pair teaches us that US indicators often accurately anticipate subsequent moves by the European Central Bank, offering opportunities for those who know how to read them.