EUR/USD is one of the major currency pairs. It means that it’s one of the most traded pairs in Forex. However, traders around the globe try to predict its future price for more than opening successful trades. The direction of EUR/USD may reflect the strength of either the EU or US economy. Moreover, the EUR to US dollar rate may reflect the overall global market sentiment.
As the pair is widely traded, it may be hard to forecast its rate for the long term. The Euro/US dollar rate is subject to such factors as interest rate differences, inflation, jobs data, trade, and capital flows. Simultaneously, a large part of the pricing is also related to ‘event’ risks that cannot be gauged in advance. Let’s go more in-depth in this Euro to Dollar forecast.
EUR/USD Current Rate
The current rate of the EUR/USD pair is $1.10306. Below, you can see an interactive chart from Forex in real-time:
Characteristic Features of the EUR/USD Pair
The EUR/USD pair belongs to the major currency pairs (majors) and is characterized by increased liquidity. This is not surprising, as it includes two of the world’s major reserve currencies: USD and EUR. It is in the euro/dollar that the largest volume of transactions is made during daily trading on the Forex market (approximately 20% of the total volume).
The behavior of the EUR/USD pair is a kind of indicator showing the comparative state of the US and EU economies. If the US economy is growing steadily, and problems arise in the EU, this might cause a EUR to US dollar fall. Conversely, if there is a decline in growth rates in the US and the Eurozone demonstrates good performance, the EUR/USD pair will grow. Let’s consider the main trading characteristics of this pair:
- Active trading hours – the pair is traded around the clock except for weekends. It is most active during the European and American trading sessions. At this time, the largest trading volumes take place, and the main movements of the EUR/USD pair take place.
- Volatility – the EUR/USD pair is characterized by medium volatility. During the release of important data, the pair is capable of making strong movements from 100 points and above. But in general, if you look at the historical data, the average daily volatility of the EUR/USD pair is about 80 pips.
- Spread is one of the main advantages of this pair. Due to the highest liquidity, the spread for the EUR/USD pair is minimal. On popular ECN accounts, the spread is usually less than 1 pip.
The Dollar in 2022: More Predictable?
Perhaps the direction of the dollar will become a little easier to predict under President Biden. First of all, financial markets are counting on the new US president to run less internationally and deal more diplomatically with trade disputes. This provides more peace and security in the financial markets, reducing the need for a haven such as the dollar.
Also, Biden is expected to spend (a lot) of money to continue to stimulate the US economy, including post-corona, which will further increase the US’s debt position. The fact that interest rates will remain low for a longer period also plays a role: at the most recent meeting of the Federal Reserve, Chairman Jerome Powell hinted that he would not have an interest rate hike until mid-2023.
All of this leads to an estimate that capital flows towards emerging markets and currencies will continue to flow at the US dollar expense. Countries such as Indonesia and Mexico have aggressively lowered their interest rates, but interest rates in these countries are still considerably higher than in the United States.
Besides, countries such as China, South Korea, and Taiwan have had the coronavirus outbreak reasonably under control for some time now. In combination with optimism about the arrival of COVID vaccines, this means that investors are, in any case, moving to more risky markets.