EUR/USD has extended its gains after dropping to its lowest level since July 2020. This article will dive into the key drivers and EURUSD forecast for 2022 and beyond.
EURUSD Price History
In 1999 when the Euro was introduced as an accounting currency, EUR to USD was at $1.1926. However, it hit its all-time low in October 2000 at $0.8252. The subsequent rallying pushed it to a record high of 1.6045 in July 2008. From 2015, it has been trading within a range of between $1.0340 and 1.2564.
Why is EURUSD so popular?
The popularity of EUR/USD is based on the fact that it represents two of the largest economies in the world- Europe and the United States. Subsequently, the currency pair is characterized by high daily volumes and liquidity.
What Factors Affect EURUSD?
Similar to other currency pairs, the EUR to USD exchange rate is affected by factors at a local and international level. On the one hand, politics and policies within the Eurozone are often influential on the pair. For instance, in late 2021, Austria imposed fresh lockdowns while Germany considered following suit. On the other hand, the domestic rules weighed on the Euro, an aspect that triggered a 17-month low of $1.1185 as of 24th November.
The economic health of the US and Europe is another aspect that investors often look at in their EURUSD forecast. This includes data on employment, consumer prices, and retail sales.
Monetary policies by the European Central Bank (ECB) and the Federal Reserve (Fed) also affect EUR/USD. Indeed, the hawkish tone exuded by both central banks is the key prevailing factor for the currency pair.
As aforementioned, the currency pair’s current movements are influenced mainly by the ECB and Fed’s monetary policies. In the past week, Fed’s hawkish stance pushed EUR/USD to $1.1121; its lowest level since June 2020.
In its interest rate decision, the Fed indicated its plans to hike interest rates for the first time since December 2018 to tighten its monetary policy. Indeed, Fed Chair Jerome Powell has stated that the central bank will likely be aggressive in the tightening.
The financial markets are currently projecting that the Feds funds rate will be at the 150 to 175 interval with a probability of 24.8%. A sharp rise of the current rate interval of 0 to 25.
EURUSD is also reacting to the ECB interest rate decision released on Thursday, February 3, 2022. While the central bank left its rates unchanged, its hawkish shift has boosted the currency pair to close to a three-week high of $1.1448.
What to Expect from ECB
As one of the influential factors, EURUSD forecast for the short and medium-term largely revolves around the ECB policy vs. the Federal Reserve policy. On the one hand, the European central bank stuck to its guidance for the asset purchase program and interest rates. But, on the other hand, it acknowledged the heightened inflationary pressures and upside risks in a hawkish turn.
Notably, comments by ECB’s president Christine Lagarde during the central bank’s interest rate decision initiated market speculations for a tighter monetary policy.
Goldman Sachs expects the European Central Bank to enact two interest rate hikes in the course of the year. The investment bank expects ECB to hike rates by 25 bps on each occasion in September and December.
Besides, the market is pricing in a probable hike of 10bps in June and a 40bps rise by the end of the year. The latter scheduling appears to have a higher implementation chance than the predicted mid-year hike.
What to Expect from Fed
The Fed’s path to tightening its monetary policy is also at the core of the EURUSD forecast for 2022 and beyond. This is because the US central bank turned more hawkish than expected in its January 2022 meeting.
Before the meeting, the market had priced in four interest rate hikes in 2022, with the first one being in March 2022. Granted, a rate hike in March remains feasible as the Fed strives to tighten its policy aggressively and deal with the heightened inflationary pressures at the highest in four decades. However, the market is now pricing in for between five and seven hikes by year-end.
Investors also expect the Fed’s bond purchase program to end in March. Last week, the Federal Open Market Committee indicated that the program would run at $30 billion in February. The focus will also be on the reduction of its $8.9 trillion balance sheet. This is set to begin after the bank has started increasing interest rates.
In addition to the fundamentals, technical analysis is crucial for a viable EURUSD forecast for 2022. After hitting its lowest level since June 2020 in the past week at $1.1121, it has rebounded by about 2.95%.
The daily chart highlights that EUR/USD remains below the long-term 200-day EMA at 1.1568. Granted, it is above the 25 and 50-day EMAs. However, since the death cross formation in July 2021, the pair has been under downward pressure. The death cross is usually a bearish sign, occurs when the long-term EMA (200-day EMA) moves above the short-term one (50-day EMA).
As long as it continues to trade below the 200-day, which may be the case in the short term, the bears will remain in control. In the coming months, the range between the psychological level of 1.1200 and the 200-day EMA at 1.1568 will be one to look out for.
EURUSD Forecast 2022
EURUSD forecast 2022 will largely revolve around ECB and Fed interest rate decisions and the overall health of the two economies. Therefore, investors will be keen on the two central banks’ path in tightening their monetary policies.
At the moment, Fed appears more aggressive in its tightening journey. A continuation of that tone relative to ECB’s efforts may curb EURUSD upward potential. Besides, increased demand for the US dollar as a safe haven may weigh on the pair. This is in line with the Russia-Ukraine conflicts and other events that may occur in the near future.
EURUSD Forecast 2025
Long Forecast’s EURUSD forecast 2025 is somewhat bearish. The firm expects the pair to begin the year at 1.1200 and drop further below 1.1000 by mid-year. By the end of the year, it expects it to be at 1.02.
While the firm’s EURUSD forecast for 2025 is viable, it is important to note that analysts can get it wrong. As such, individual research on the fundamentals and technicals is crucial. Besides, it helps a trader to stick to the formulated trading strategies.
EURUSD Forecast 2030
EURUSD forecast 2030 may be rather difficult to formulate due to the high volatility associated with the pair. As an investor, it will be helpful to steady track ECB and Fed policies, the health of both economies, and politics at the domestic and international level.
Is EURUSD a Good Investment?
As aforementioned, EURUSD represents two major economies. Therefore, it is an attractive asset to include in one’s portfolio, seeing that it will always exude high volatility. However, while it offers investors numerous trading opportunities, it is important to trade EURUSD based on one’s risk appetite. This means that one shouldn’t trade with money they are not willing to lose.