- With Trump confirmed as the new U.S. President and the Federal Reserve pausing rate cuts for now, the U.S. heads into 2025 with accelerating economic momentum, solidifying its role as a magnet for global investors.
- Europe grapples with significant political crises in France and Germany alongside a stagnant economy, pushing the European Central Bank (ECB) to cut rates, inevitably impacting the euro.
- The EurUsd pair ends 2024 down over 5%, with prospects still favoring the dollar according to technical analysis.
2025: A Year of Economic Certainties and Geopolitical Uncertainties
As always, the dawn of a new year brings a mix of certainties and uncertainties.
On the side of certainty, Donald Trump’s re-election—with a solid majority in Congress—sets the stage for a potentially transformative second term. Trump is expected to push forward many of his campaign promises, including policies on immigration, trade tariffs, and tax cuts.
Markets have already responded with a powerful stock rally throughout 2024, once again positioning the S&P 500 ahead of global indices. Meanwhile, bond yields have climbed back above 4.5% for 10-year Treasuries, reflecting investor confidence that December’s rate cut was likely the last—at least until well into spring.
This growth and yield differential have been key drivers of the dollar’s strength, closing 2024 at its peak. The year began with the euro trading above 1.10 against the dollar and ends below 1.05. For European investors favoring the greenback, this means not just currency gains but a near 10% total return, factoring in interest income.
Yet, 2025 begins under the shadow of significant uncertainties:
- Geopolitical Tensions: Ongoing conflicts in the Middle East and the war between Ukraine and Russia continue to stoke global unease.
- Political Instability in Europe: Both Germany and France face crucial challenges to restore domestic stability, threatening the broader European integration project—a weakness already priced into the euro.
- China’s Dual Challenges: Deflationary pressures and an economy still struggling to recover from the property market collapse leave Beijing navigating murky waters, despite successive rate cuts. Military tensions over Taiwan further compound risks.
In this complex environment, the currency market in 2025 is poised to offer opportunities for traders adept at interpreting the nuanced signals from technical analysis.
Technical Analysis: Euro Faces Continued Challenges in 2025
The euro is making every effort to resist further declines against the dollar, but the lackluster attempts so far suggest little hope for an immediate trend reversal.
From a technical perspective, the most striking feature is the divergence between falling prices and the RSI oscillator, which remains in oversold territory yet shows rising lows. This triple divergence in the oscillator typically signals a rebound within a few trading sessions.
However, what worries short-side investors betting against the dollar are the three monthly candlesticks shaping the close of Q4 2024. Japanese candlestick enthusiasts will recognize the “Three Black Crows” pattern—a classic harbinger of further declines in the months ahead for this currency pair. 2025 will undoubtedly be a critical test for the euro, with no room for complacency.
As the Dollar Index consolidates its position, the technical landscape suggests the euro will face a formidable challenge in reclaiming strength against the dollar in the year ahead.
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