EUR/USD in 2024-2025: Analysis of the most traded pair in the currency markets

Why is EUR/USD the most important asset in Forex?

The euro-dollar pair represents the confluence of the two largest economic powers: the European Union and the United States. Since its introduction in 1999, when the euro replaced currencies such as the German mark and the French franc, it has become the most liquid trading instrument on the planet.

According to data from the Bank for International Settlements (BIS), the average daily volume traded in the spot market reaches $2.2 trillion. Including derivatives and forwards, the figure rises to $7.5 trillion daily. This market depth explains why price movements in EUR/USD are more stable than in other currency pairs.

The current technical scenario: Bullish triangle forming

From a chart perspective, the pair shows an ascending triangle pattern where resistance is located at key levels. However, technical indicators send conflicting signals.

The 50, 100, and 200-period moving averages reveal a lack of clear direction. Although the euro broke below some of these levels, it has experienced constant back-and-forth movements in recent weeks, suggesting a consolidation phase.

The RSI is in contraction territory, not yet oversold, while the DMI points downward. This combination suggests contained volatility but with potential for directional changes in the short term.

Price projections: 2024 versus 2025

Scenario for 2024

Using Fibonacci extension as a projection tool, a moderate bullish scenario would position EUR/USD near 1.12921 by year-end. This estimate assumes a favorable hypothesis for the euro, based on changes in monetary policy in both zones.

Expectations for 2025

If we extend the time horizon, the potential target level would be around 1.21461 before a possible correction. Such a correction, in any case, should not significantly break below supports at 1.15.

Monetary policy: The real driver of movement

The determining factor for the pair’s direction in 2024-2025 will be the monetary normalization cycle in the United States and Europe. The Federal Reserve paused rates at 5.50% at the end of July 2023, while the European Central Bank reached 4.50% in September of the same year.

Historically, the Fed sets the pace that the ECB follows afterward. Estimates indicate that the FED will cut rates in December 2024 to the 4.50%-4.75% range, and in December 2025 to 3.75%-4.00%. The ECB is projected at 4% by December 2024 and 3% by December 2025.

This dynamic suggests that the dollar would face relative pressure if the FED leads the rate cut cycle. However, by 2025, the gap could close, allowing for a possible recovery of the dollar at the expense of the euro.

Factors strengthening the US dollar

• Reduction of the Federal Reserve’s balance sheet
• Increases in interest rates
• Repatriation of capital by US corporations
• Safe haven demand during financial crises
• Economic growth and positive GDP

Elements weakening the US dollar

• Domestic economic crises or recessions
• Gradual abandonment of the dollar by emerging economies
• Expansion of the Fed’s balance sheet through liquidity injections
• Rate cuts
• Loss of confidence in US economic stability

Favorable dynamics for the euro

• Rate hikes by the ECB
• Improvement in eurozone indicators
• Regional unemployment reduction
• Increase in intra-system banking activity
• Overall eurozone GDP growth

Downward pressures on the single currency

• Increase in money supply through liquidity injections
• Rate reductions
• Massive sovereign debt purchase programs
• Regional unemployment deterioration
• Geopolitical shocks such as energy impacts from external conflicts

Methodologies for participating in EUR/USD

There are three main avenues for retail investors:

Investment funds: Less recommended option, as it seeks exposure to monetary instruments rather than taking advantage of exchange rate fluctuations.

Currency futures: Forward contracts that allow gains if the exchange rate moves favorably relative to the forecast within the stipulated period.

CFD contracts: The most accessible alternative for retail, allowing leverage and relevant exposure with limited capital. A standard lot in Forex equals 100,000 units of the base currency.

Since currency movements tend to be moderate, leverage through CFDs is particularly useful for intraday trading. Traders with longer time horizons can take advantage of corrections to hedge long positions through short sales.

Historical evolution: From the 2008 crisis to today

Since 2008, EUR/USD has traded within a long-term downward channel. The Fed’s decision to bring rates to 0% to combat the financial crisis, while the ECB maintained high rates, exerted pressure on the euro for years.

The COVID-19 pandemic caused an unexpected turn. The US acted more quickly, approving massive stimulus packages. EUR/USD rose from 1.0780 on March 25, 2020, to 1.2299 on December 31 of the same year.

However, European rescue programs began to reverse this advantage. The turning point came in February 2022 with the invasion of Ukraine, which worsened the European geopolitical situation. Although September 2022 marked a trend reversal, there is currently strong resistance at 1.1255.

Considerations on volatility and risks

Despite the forecasts presented, no economy is immune to unexpected events. Geopolitical black swans, financial crises, or changes in risk perception can quickly alter the landscape.

Since both currencies will remain pillars of the Forex market, extreme volatility is not a primary concern. However, it is essential to carefully calibrate the size and direction of positions.

Is investing in EUR/USD viable during 2024-2025?

EUR/USD maintains attractive features: relatively low volatility, competitive spreads, and unmatched market depth. Betting on this pair is viable as long as macroeconomic expectations are monitored.

History shows that US indicators tend to precede subsequent changes in ECB policy, providing a reliable compass for forecasts. Understanding this historical dynamic allows for informed decisions on long or short positioning based on each economic zone’s cyclical prospects.

The key lies in understanding that the EUR/USD exchange rate is determined both by its own strengths and by relative weaknesses. At given moments, the eurozone can remain stable while a crisis erupts in the US, appreciating the euro without internal changes. This analytical flexibility is what differentiates successful traders from those who follow linear predictions without adaptability.