The EUR/USD has dropped significantly from 1.12 a few months ago. But in the next quarter, there may be many changes in the market, with the euro struggling below 1.0450 against the US dollar.

With Trump taking office and the widening gap between the US and Eurozone economies, EURUSD remains weak and is expected to test parity in the first half of 2025.

The dovish European Central Bank, weak economic growth, and political instability

The European Central Bank was one of the first major central banks to cut interest rates in June, with each of its four meetings this year cutting rates by 25 basis points. Although inflation seems to be under control, economic growth appears weak at best, and the possibility of recession is increasing. It is expected that weak consumption will continue until 2025.

In addition to economic difficulties, political uncertainty may continue in early 2025, with Germany holding early elections in February and France remaining unstable after the collapse of Michel Barnier's government.

Trump 2.0

As the end of the year approaches, the US dollar is at a two-year high. Trump's victory in the US election is a key catalyst for the latest round of dollar appreciation.

Trump's policies are expected to lead to inflation as he plans to cut taxes and impose tariffs on foreign goods and services. These policy measures come at a time when the US economy is showing resilience and stable employment levels.

Although the Federal Reserve has already cut interest rates at three meetings, the dot plot shows that the pace of interest rate cuts in 2025 will slow down after the Fed raises its inflation expectations for 2025. It is expected that there will only be two interest rate cuts next year, which will support the US dollar.

The divergence between the Federal Reserve and the ECB

The Federal Reserve expects to cut interest rates twice next year and has raised its economic growth forecast. Meanwhile, due to weak economic growth, it is expected that the European Central Bank will further cut interest rates this year. If Trump implements trade tariffs on Europe, it may further slow down economic growth, thereby increasing the need for further interest rate cuts.

The most important thing is that the Federal Reserve is facing pressure from rising inflation, while the European Central Bank is at risk of needing to cut interest rates more significantly. This may put pressure on the euro against the US dollar, further pulling the currency pair towards parity.

What is the next trend for EUR/USD?

On the weekly chart, EURUSD rebounded from 1.12 and fell to the support level of 1.0330. Although the price rebounded from this low point, it failed to regain 1.0630 before falling again.

Under the support of resistance level 1.0630 and relative strength index (RSI) below 50, sellers will seek to extend the bearish trend below 1.0330 to 1.02 and parity.

The buyer needs to regain 1.0630 to create a higher peak and present it more positively on the chart.