EURUSD currency pair overview in 2023: definition, analysis and forecasts
What is the EUR/USD currency pair?
The EUR/USD is the most popular, widely-traded currency pair in the forex market, representing the euro (EUR) and US dollar (USD). It indicates how many US dollars (the quote currency) are needed to purchase one euro (the base currency).
The euro serves as the official currency for 20 of the 27 European Union members, collectively known as the Eurozone. It is the second most held reserve currency after the US dollar.
What is EUR/USD? The EUR/USD is an important benchmark that reflects the relative economic strength of Europe and the United States. It trades with high liquidity as it is exchanged extensively by forex traders, banks, institutions, and central banks worldwide.
Euro vs Dollar Usage
Roughly 337 million Europeans use euros for daily transactions and business, while the US dollar dominates global finance as the most traded and reserve currency held by central banks.
The euro is shared by multiple advanced economies including Germany, France, Italy, Spain and others. The dollar is primarily driven by the mammoth US economy.
Table showing countries that use the Euro and Countries Use American Dollar
| Countries Using Euro | Eurozone countries | Non-EU countries using the euro | Countries Using American Dollar |
| Andorra | Austria | Andorra | East Timor (Timor-Leste) |
| Kosovo | Belgium | Kosovo | Ecuador |
| Monaco | Cyprus | Monaco | El Salvador |
| Montenegro | Estonia | Montenegro | Federated States of Micronesia |
| San Marino | Finland | San Marino | Panama |
| Vatican City | France | Vatican City | Zimbabwe |
| Germany | |||
| Greece | |||
| Ireland | |||
| Italy | |||
| Latvia | |||
| Lithuania | |||
| Luxembourg | |||
| Malta | |||
| Netherlands | |||
| Portugal | |||
| Slovakia | |||
| Slovenia |
Trading Volume and Liquidity
EUR/USD trades with extremely high liquidity, averaging $1 trillion+ in daily forex turnover. The currency pair represents about 23% of global daily trading volume, more than any other pair.
Higher liquidity benefits traders by allowing faster order execution and easier entrance/exit from positions. The EUR/USD offers stable, consistent liquidity to traders across the 24-hour global forex market.
Available Trading Sessions
The EUR/USD can be traded at any time as the forex market operates 24/7 during weekdays. Key trading sessions based on global financial centres include:
- Asian session (Sydney, Tokyo)
- European session (London, Frankfurt)
- North American session (New York, Chicago)
Volatility often climaxes when two sessions overlap such as London-New York.
Fundamental Drivers of EUR/USD
The EUR/USD exchange rate is influenced by various economic and political fundamentals in the Eurozone and the United States:
Divergence in Central Bank Policies
The key drivers are monetary policy moves by the European Central Bank (ECB) and the US Federal Reserve (Fed), which steer interest rates and impact currency valuations.
For example, if the Fed is aggressively hiking rates while the ECB takes a more dovish approach, the interest rate differential would boost USD and weigh on the EUR/USD rate.
Table comparing ECB and Fed interest rates over time
| Year | ECB Interest | Fed Interest | Year | ECB Interest | Fed Interest |
| Rate (%) | Rate (%) | Rate (%) | Rate (%) | ||
| 2023 | 4.50 | 5.50 | 2011 | 1.50 | 0.00-0.25 |
| 2022 | 2.50 | 4.75 | 2010 | 1.00 | 0.00-0.25 |
| 2021 | 0.00 | 0.00-0.25 | 2009 | 1.00 | 0.00-0.25 |
| 2020 | -0.50 | 0.00-0.25 | 2008 | 3.25 | 1.50-1.75 |
| 2019 | -0.50 | 1.50-1.75 | 2007 | 4.00 | 4.75-5.25 |
| 2018 | 0.00 | 1.75-2.00 | 2006 | 3.75 | 4.25-5.25 |
| 2017 | 0.00 | 1.00-1.25 | 2005 | 2.25 | 2.50-3.50 |
| 2016 | 0.00 | 0.25-0.50 | 2004 | 2.00 | 1.00-1.75 |
| 2015 | 0.05 | 0.00-0.25 | 2003 | 2.25 | 1.00-1.25 |
| 2014 | 0.05 | 0.00-0.25 | 2002 | 3.25 | 1.75-2.25 |
| 2013 | 0.25 | 0.00-0.25 | 2001 | 4.75 | 3.75-4.75 |
| 2012 | 0.75 | 0.00-0.25 | 2000 | 4.75 | 6.50-6.50 |
Inflation Rates
Widening inflation rates between Europe and the US can impact EURO to USD. Higher Eurozone inflation than the US could weaken the euro as rising prices eat into the currency's purchasing power. High inflation typically spurs central banks to raise interest rates, also dampening the currency's value.
Economic Growth Indicators
Key indicators like GDP, employment, manufacturing, and service sector data that point to stronger US or Eurozone growth can strengthen that region's currency against the other.
If Eurozone PMI and jobs data deteriorate while the US posts robust numbers, it would favour EUR weakness and USD strength.
Geopolitics
Geopolitical tensions or events in the Eurozone or the US can cause sharp EUR/USD movements. For example, Brexit uncertainty weighed heavily on the euro. Upcoming elections are also monitored.
Risk Sentiment
Broader market risk sentiment impacts EUR/USD. In times of market stress or uncertainty, traders tend to buy USD as a haven currency, exerting downside pressure on EUR/USD.
Key Eurozone Economies
Since the euro currency is shared among 20 different economies, it is important to analyse the major economies driving the Eurozone when forecasting EUR to USD.
Germany
Germany maintains the largest and most resilient Eurozone economy. Trends in German data such as GDP, manufacturing, unemployment, inflation and exports provide key insight into overall Eurozone strength. A weakening German economy could portend euro declines.
France
France represents another linchpin economy of the monetary union. The country runs large current account deficits but is a major political force shaping EU policy direction. Shifting political winds and fragile economic growth in France can impact the euro.
Italy
Italy’s sizable debt burden and stagnant economic growth remain a recurring threat to Eurozone stability. Lingering Italian recession risks could continue weighing on the shared currency.
Spain
Spain has managed to rebound after its crippling housing crisis but still suffers high unemployment. Further economic deterioration in Spain could spark euro selloffs.
Technical Analysis of EUR/USD
In addition to macro fundamental drivers, forex traders rely heavily on technical EUR/USD analysis to identify trading opportunities.
Price Action Analysis
Analysing how the EUR/USD price is behaving on the chart, including key support and resistance levels, trends, and chart patterns provides insight into future movements.
For example, a bullish breakout above a key long-term resistance indicates upside momentum is accelerating.
Moving Averages
Smooth moving averages like the 50 and 200-day averages provide dynamic support and resistance levels. The slope of moving averages also indicates trend direction.
Volatility Indicators
Bands like Bollinger Bands provide average true range and volatility information, helping traders gauge whether prices are extending too far from normal ranges.
Momentum Oscillators
Indicators like MACD and RSI signal accelerating momentum. For example, overbought RSI conditions signify upside exhaustion ahead.
Fractal Patterns
Recurring price patterns like double tops, head and shoulders, triangles and others provide clues on market psychology shifts.
Skilled EUR/USD traders combine both fundamental and technical analysis to identify high-probability trading setups.
EUR/USD Forecast Short and Long Term
Based on current economic and technical dynamics, analysts expect EUR/USD to face further downside risks in the near term before recovering eventually.
Short-Term Forecast
Several factors suggest EUR/USD weakness ahead including:
- Hawkish Fed tightening policy faster than dovish ECB.
- Recession risks brewing in Europe due to energy crisis.
- Technicals showing weak momentum and bearish patterns emerging.
These drivers could push EUR/USD back towards parity (1.00 level) or even below it in the coming months. The bullish sign would be if the pair can break above 1.10 resistance.
Long-Term Outlook
In the long term, the euro could regain some lost ground when:
- Fed concludes rate hike cycle allowing ECB to catch up.
- Eurozone inflation cools more rapidly than US inflation.
- Ukraine war and energy crisis risks fade, supporting eurozone growth.
This may stabilize and lift EUR/USD back towards the 1.15-1.20 range in 2023-2024. However, the path depends heavily on central bank policies and inflation trends.
In general, analysts expect the pair to remain under pressure near-term, driving more downside towards parity before eventual mean reversion higher when Fed tightening concludes.
Trading the EUR/USD Volatility
EUR/USD provides great trading opportunities but requires disciplined risk management given its frequent volatility. Here are some tips:
Confirm Market Bias
Trade in the direction of the broader bias by analyzing the confluence of fundamental drivers, technicals, and market risk appetite.
For example, EU recession fears and hawkish Fed favours remaining bearish EUR/USD currently.
Define Risk-Reward
Use a positive risk-reward ratio of at least 1:1.5 on every trade, placing stop losses near key technical levels. Set realistic profit targets.
Manage Position Sizing
Limit position size to 1-5% of account capital to withstand market swings. Avoid over-leveraging and use proper capital allocation.
Set Stop Losses
Use stop losses religiously to limit the downside. Avoid having excessive open losses accumulate. Tighten stops to protect profits as the trade moves favourably.
Book Partial Profits
Consider trailing stops or taking partial profits along the way to lock in gains, for example at 50% or 100% of the risked amount.
Anticipate Volatility
Be nimble around major economic data releases or events that can spark sharp EUR/USD movements. Widen stops at these times and reduces positions to lower risk.
Proper analysis, risk management, and trading psychology discipline are required to navigate the notoriously volatile EUR/USD pair.
Conclusion
In summary, while the EUR/USD currently faces downside pressure due to Eurozone slowdown fears and hawkish Fed policy, the currency pair remains heavily influenced by central bank divergence moving forward.
Traders should utilise both fundamental and technical analysis when formulating EUR/USD outlooks and positions. Risk management through stop losses, controlled position sizing, and partial profit-taking is key to long-term success in trading this volatile pair.
The EUR/USD will continue oscillating within the long-term range between parity and 1.25 based on relative Eurozone and US growth and inflation trends.
FAQ
Will the EUR USD rise or fall?
The EUR/USD is expected to face further downside in the near term towards parity before stabilizing. Key drivers include hawkish Fed policy tightening faster than the dovish ECB, recession risks in Europe, and technical weakness. However, the euro could recover longer-term as the Fed pauses rate hikes.
What is the EUR USD forecast for 2023?
The EUR/USD forecast for most of 2023 is bearish, with the pair likely falling towards 1.00 parity or slightly below on Eurozone slowdown fears. However, economists expect the euro to regain some ground later in 2023 if inflation peaks, allowing the ECB to catch up on tightening. The EUR/USD could recover above 1.10 by the end of 2023.
What is the future prediction for dollar to euro?
Based on interest rate differentials and growth forecasts, analysts see the US dollar maintaining its strength vs the euro in the 1H 2023 before softening in the 2H 2023 as the Fed approaches the end of its tightening cycle. The EUR/USD is predicted to decline towards 1.00 before rebounding towards 1.15 by the end of 2023.
Will the euro fall in the coming days 2023?
The euro faces a high probability of declines vs the US dollar in early 2023 as the market prices in recession risks for the Eurozone economy stemming from the energy crisis and inflation. The ECB’s dovish stance compared to the hawkish Fed also weighs on the euro. Technical chart patterns also look weak.
Will the USD rise or fall in 2024?
The US dollar is expected to continue rising in early 2024 as the Fed hikes rates aggressively to tame inflation. This dollar strength should peak by mid-2024 as markets start pricing in an approaching end to the Fed’s tightening cycle. The dollar may give back some gains in 2H 2024 as rate hike expectations decline.
What is the best time to trade EUR USD?
The overlap between the London and New York sessions (8 AM to 12 PM UTC) tends to see the highest EUR/USD trading volume and volatility, making it a good time to trade. Other active hours are the early Eurozone session (6 AM - 8 AM) and late US session (5 PM - 7 PM UTC).
Is EUR USD expected to rise?
Near term, the EUR/USD faces further downside towards parity before finding a bottom. However, economists expect the currency pair to eventually recover higher in 2023 once the Fed concludes its tightening cycle, recession fears fade, and Eurozone inflation moderates. An EUR/USD rise back above 1.10 appears possible later in 2024.
