- On the first trading day of the new year, the euro/dollar pair fell by 0.8%.
- There is a strong bearish mood surrounding the battered euro.
- Analysts expect the interest rate differential to widen further, reaching parity by 2025.
EUR/USD has fallen further ahead of the start of the 2025 trading season, dropping 8/10% to hit the 1.0250 level for the first time since November 2022, a nearly 26-month low. Thursday's European Manufacturing Purchasing Managers' Index (PMI) data was off the mark, but a dovish tone from European Central Bank (ECB) Policy Commissioner Giannis Stournaras later in the day led to euro traders The suffering became even greater.
The ECB is cutting interest rates at a steady pace until 2025, according to ECB Governing Council member Giannis Stournaras. According to ECB's Stournaras, the ECB is expected to reach around 2% in the second half of this year. With the US Federal Reserve (Fed) cutting interest rates at a much slower pace than previously expected in 2025, the euro's interest rate differential is expected to widen significantly throughout the year, putting downward pressure on EUR/USD. The pressure will continue. In the long run. This is in line with expectations from some analysts who are calling for the euro to reach parity with the US dollar by the end of this year.
The pan-European PMI survey result for December was slightly lower, falling to 45.1 versus the expected 45.2. The impact of this statistic itself was relatively small, but the European Central Bank (ECB) could accelerate interest rate cuts to support Europe's economy even as gas prices hit a two-year high and markets become more volatile. This helped highlight the rise in sexuality. European Economic Outlook.
The only meaningful data to watch on Friday's economic calendar is the U.S. ISM Manufacturing PMI survey, which is expected to stabilize at negative 48.4 in December.
EUR/USD price prediction
EUR/USD is down 8.82% from September highs just above the 1.1200 handle, but short sellers have so far failed to break above 1.0200. The bearish divergence in the Moving Average Convergence Divergence (MACD) indicator is becoming harder to ignore and suggests further technical losses to come.
Fiber optic bid prices have fallen further as the 50-day exponential moving average (EMA) has fallen to 1.0550. If bidders are able to rally beyond this point, the 200-day EMA will wait just above 1.0760.
EUR/USD daily chart
Euro Frequently Asked Questions
The euro is the currency of the 19 European Union countries that belong to the euro area. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of over $2.2 trillion. EUR/USD is the most frequently traded currency pair in the world, accounting for an estimated 30% of all trades, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%). ) and so on.
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets interest rates and controls monetary policy. The ECB's main task is to maintain price stability, which means controlling inflation or stimulating growth. The main means of doing so is raising or lowering interest rates. Relatively high interest rates, or expectations of rising interest rates, usually benefit the euro and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including Christine Lagarde, president of the ECB.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially above the ECB's 2% target, the ECB will mandate interest rate hikes to rein in inflation. Relatively high interest rates compared to other countries typically benefit the euro, as it makes the region more attractive to global investors as a place to park their funds.
The data release will gauge the health of the economy and could have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only would that attract more foreign investment, but it could also prompt the ECB to raise interest rates, which could directly lead to a stronger euro. Otherwise, if economic indicators are weak, the euro is likely to weaken. Economic data for the euro area's four largest economies (Germany, France, Italy and Spain) is particularly important, as they account for 75% of the euro area economy.
Another important data regarding the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, the value of its currency increases purely due to the additional demand generated from foreign buyers seeking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
