EUR/USD Analysis Today 02/01: Trading Opens Weak (Chart)

Created on January 02, 2025

In the last trades of 2024, the euro saw increased losses against the US dollar due to Trump’s trade policies.
This pushed the most traded pair on the forex market to its lowest level in two years, reaching the support level of 1.0331.
It closed the year close to its losses at around 1.0349.

Therefore, the strongest expectations are that the US dollar will continue its upward trajectory in the coming period.

Bank forecasts for the euro/dollar in the coming months

In this regard, the Forex Analysis Department of the Danish Bank expects the EUR/USD pair to fall to the price of 1.0000 in a 12-month period. In general, investment banks are reluctant to predict EUR/USD falling below parity. Moreover, Wells Fargo expects EUR/USD to trade at 0.98 by the end of 2025. UBS has also slightly revised its forecast, but still expects EUR/USD to recover to 1.10 by the end of 2025.

In general, investment banks generally expect the new US administration’s policies of tax and tariff cuts to put pressure on inflation and prevent further cuts in US interest rates. Therefore, the tariffs are likely to undermine the Eurozone’s forecasts. In this regard, Nordea Bank commented; “We believe that the US dollar will remain dominant in the foreign exchange market through 2025 and that the balance of risks points to further economic divergence that could encourage a stronger dollar.”

However, Mitsubishi UFJ Financial Group commented; “The 2-year euro-US swap fell to a new low of -198 basis points, surpassing its lowest levels recorded during the period following the invasion of Ukraine in 2022 when energy prices in Europe rose. At the time, the EUR/USD pair was trading well below parity, thereby highlighting where the risks lie in the coming months.”

However, MUFG Bank commented: “The two-year EUR-US spread fell to a new low of -198 basis points, surpassing the lows recorded during the period following the invasion of Ukraine in 2022 when energy prices in Europe rose. This was when EUR/USD was trading well below parity and thus highlights where the risks lie in the months ahead.”

Fed policy will determine the future of EUR/USD

On a related note, the Fed cut US interest rates by 25 basis points to 4.50% at its latest policy meeting for 2024, in line with expectations. However, there has been a change in the expectations of individual board members. The median forecast is for two US rate cuts in 2025, compared to four cuts in the September 2024 forecast. Markets now generally assume no cut in January 2025, but with a less than 50% chance of a cut in March. Only two reductions are calculated for 2025.

Trading Tips:

The EUR/USD pair will remain weak in the coming months. So, always focus on the weakness factors and don’t take risks no matter how good the trading opportunities are.

American trade wars and their impact on the Eurozone

Under the new and controversial US administration, trade policy will be closely watched with expectations that the Trump administration will use tariffs or the threat of tariffs as a major global economic weapon. In this regard, Nordea Bank commented; “There is also the potential for a stronger dollar in the scenario of an aggressive trade war between the US and the rest of the world. Potential tariffs could put pressure on already weak economies outside the US and increase pressure on US inflation, increasing the likelihood that the Federal Reserve will take a hawkish stance , “we would not be surprised if the tariffs pushed the dollar below parity against the euro”.