Possible Upward Reaction Might Present Selling Opportunities as EURUSD Eyes Parity 
Burc Oran
January 3, 2025

EURUSD continues its journey toward parity. Fundamentally, this trend is likely to continue until significant changes occur. The difference in economic strength between the US and the EU, coupled with fears of incoming Trump tariffs, are two key factors driving EURUSD further down. 

The disparity in economic strength is also reflected in rate expectations. Markets anticipate a 1.7-step (each step equating to 25 basis points) rate cut from the Federal Reserve, while expecting 4.40 steps from the ECB. This implies that the difference in rates between the Fed and the ECB is expected to increase to 2.16% from 1.50% by the end of 2025. 

With political risks remaining high and the monetary policy divergence persisting, EURUSD could remain under pressure in the coming months. 

(EURUSD Monthly Chart) 

©Bloomberg 

The technical outlook aligns with the fundamental view over the medium to long term. EURUSD closed below 1.048 on the monthly, quarterly, and annual bars at the end of December. The last time this occurred, in 2022, EURUSD fell below parity. With this sell signal, January’s opening was also negative. 

The chart indicates that EURUSD could drop even below the 2022 low over the course of 2025, making another dip. However, this could mark the end of the infamous downtrend that began in 2008, as the outlook points toward a declining wedge formation, a pattern that often breaks upward. 

(EURUSD 1H Chart) 

©Bloomberg 

In the short term, EURUSD is likely to stage an upward reaction toward the current resistance level, which was previously the main support at 1.0340. During the last two downside breaks, EURUSD retraced 50% of the previous top-to-bottom moves. Similarly, following the recent break of 1.046, EURUSD may move toward 1.0340, which represents 50% of the latest drop. 

However, unless EURUSD achieves multiple daily closes above 1.0340, any upward moves are likely to present selling opportunities before EURUSD potentially drops below parity. 

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