Despite being on the forex arena for only two decades, EUR/USD has proven itself to be a major powerhouse of modern currency trading. Before we take a look at the EUR/USD forecast, let's first take a look at its background in case you are new to the forex market.
Back to the basics
The EUR/USD is the euro-to-U.S. dollar currency pair. It represents how many U.S. dollars — which is the quote currency — are needed to buy one euro — the base currency.
The EUR/USD pair is often referred to as simply the “Euro.” However, you may also hear some traders call it the “fiber.” The origin of the nickname has several possible explanations. One of them is the fact that the Eurozone is said to have one of the largest optical fiber networks in the world.
The EUR/USD is the most popularly traded currency pair in the foreign exchange market. It is not surprising, considering that both currencies represent the two largest and most influential economies in the world: the U.S. and the European Union.
There are plenty of reasons why EUR/USD trading sees high volumes every day. These include a wide range of market participants, the combination of liquidity and volatility and the vast amount of financial data available on the pair’s exchange rate.
All of these factors make the EUR/USD pair attractive to all types of traders, including newcomers and veterans alike.
Factors that influence the EUR/USD pair
Several factors can impact the value of the euro and the U.S. dollar in relation to each other, as well as other currencies. The most obvious one is the health of the European and American economies.
The interest rate differential between the European Central Bank and the Federal Reserve (Fed) tends to influence the EUR/USD value. Especially when these currencies are compared to each other. Higher interest rates typically have bullish, or positive, effect on the currency, at least in the short term, and vice-versa.
Moreover, bad news from either country can have an unfavourable impact on the prices of the EUR/USD pair. For example, the EU news about the immigrant influx in Greece and Italy and the government debt crisis have recently caused a euro selloff, making the pair's exchange rate to fall.
Political and economic uncertainty can also be a key driver of the EUR/USD price. For instance, elections, Brexit, recession fears and the U.S.-China trade war – all can result in the volatility of this forex mammoth.
Other things that you should keep your eye on are the U.S. and EU’s GDP growth and unemployment rates. Typically, the currency whose economy has higher growth rate and lower unemployment, tends to appreciate against its counterpart.
Luckily, all the needed information can be easily obtained from a plethora of resources, both online and offline. Modern financial markets have full media coverage, allowing you to stay up-to-date with the latest market news and tendencies.
The EUR-to-USD trend
Let's have a look at the EUR/USD trend since the beginning, starting from 1999.
The EUR/USD pair has only been around since 1999 when the euro was introduced to the global financial markets.
The pair started trading at a rate of 1.1795. However, in October 2000 it fell to a low of 0.8225 as European countries were still adjusting to the new currency. Once adoption became widespread, the euro started increasing in value. In July 2008, the EUR/USD pair hit its all-time high of 1.6037.
The Eurozone currency has witnessed many ups and downs over its lifespan. Between 2008 and 2014, the euro saw a record fall in the aftermath of the financial crisis. Over the next few years, the EUR/USD experienced large price swings caused by various political and economic events.
Euro-to-dollar forecast: what will the chart look like?
Today, the European currency remains at gunpoint. Frustratingly weak macroeconomic reports, as well as the ongoing political crisis in Italy, have only added fuel to the fire.
As of August 20, the rate of EUR/USD is 1.107. According to the chart, the exchange rate has been in a downtrend for over a year now.
Presently, many factors are pushing the euro towards a downward dynamic.
German GDP also fell into the negative region (-0.2%) for the first time since Q3 of 2018. The market participants started speculating about the possibility of a recession in the country, which is the driving force of the overall European economy.
Thus, the fundamental background for the euro remains negative, heavily reflecting on the EUR/USD forecast.
According to Walletinvestor.com, a long-term increase is expected for the EUR/USD pair, with the forex rate prognosis of 1.186 for August 2024. Therefore, if you invest today, the revenue is expected to be around +7.05% in 5 years.
However, their short-term EUR/USD predictions look less optimistic:
Based on the opinion of another popular forecasting agency, the EUR/USD rate is expected to hit 1.085 by September 2023.
Here is their EUR/USD outlook for the next couple of years:
On the other hand, experts at Gov Capital have a much more positive outlook. They have said that the EUR/USD rate may reach 5.697 by the end of August 2024.
This is what their one-year forecast looks like:
Are you considering EUR/USD investing? Taking into account the uncertainty in the European region and what the euro-to-dollar forecast tells us, it may not be the best time to invest your cash in this forex pair. However, you can still try to profit from the forex volatility through the contracts for difference.
How to trade EUR/USD CFDs
A contract for difference, or CFD, is an agreement between an investor and a broker to profit from the price difference between the opening and the closing value of the trade. It gives you the opportunity to hold a long position, speculating that the price will rise, or a short position, speculating that the price will fall.
No matter whether you have a positive or negative view of the euro/dollar forecast, you can still try to profit from the future price movements. However, as CFDs are a leveraged product, gains, as well as losses, are magnified.
You can learn more about CFD trading with free online courses and stay on top of the EUR-to-USD trends with Capital.com.
What is your bet on the euro to dollar forecast?