EUR/USD Price Forecast for 2024 – Lower Interest Rates Might Send the Fiber Above 1.15

Euro Forecast Video for 2024

The euro has been all over the place during the 2023 trading year, which is typical considering just how choppy this pair can be. We have seen a lot of different fundamental factors come into the picture and cause havoc, and I think that’s probably going to continue to be a major issue. After all, we had seen quite a bit of interest rate tightening coming out of the Federal Reserve, which of course is good for the US dollar as money tends to go where it is treated best.

That being said, as we head into 2024, some things may have changed. Ultimately, the one thing that has caught everybody’s attention is the idea that the Federal Reserve is going to start cutting rates in 2024, based on the movement of the dots on the so-called “dot plot” that comes out at every Federal Reserve meeting. Ironically, the Federal Reserve has told traders more than once not to put too much emphasis on the dot plot, but it seems like every time there is movement, traders will jump directly in that direction.

Powell Gives In

So, the question now is whether or not Jerome Powell is giving into Wall Street, or whether or not the Federal Reserve sees something ugly on the horizon? Depending on the answer, we could have two wildly different scenarios this year. If you indulge me for a moment, I can explain both.

Scenario One – Wall Street Gets Their Wish

The first one of course is that Jerome Powell has given into Wall Street. Wall Street loves cheap money, meaning lower interest rates, because they can inflate assets. It’s essentially the one thing that drives the stock market. Stock markets used to reflect the underlying economy, but now they just reflect the transmission of money as most trading is high frequency anyway. It takes a bit of a stretch to think that firms trading in milliseconds are truly worried about the earnings of the company that they are dabbling in.

If this is the case, then you could see all assets inflate while the US dollar takes it on the chin. By default, the Euro is the big winner, because it is considered to be the “anti-US dollar.” This is the case that Wall Street is going with at the moment, as retail sales and other indicators in the United States suggest that perhaps the economy may be in better shape than people thought. However, if you look under the surface, there are some questions that I think a lot of traders are overlooking.

Scenario Two – The Federal Reserve Sees Something

The second scenario is that the Federal Reserve sees something coming down the road that it doesn’t like. Going back to retail sales, although they have risen it’s probably worth noting that there is a huge surge in credit card defaults in America, and of course a lot of so-called “BNPL” purchasing. This is short for “buy now, pay later”, which is not exactly a sign of strength. If the consumer loses strength in the United States, it assures a recession.

The Main Take Away

The main takeaway to this is I think we will have a year that is quite a bit like 2023 in the sense that we will have a story of 2 two tales. I believe that the early part of the year will feature a lot of US dollar weakness, but later on down the road I also believe that the Federal Reserve may find itself staring down the barrel of a nasty recession, and therefore be forced to cut rates more aggressively. While this will initially work against the US dollar, if the Federal Reserve starts to panic, that will cause traders to run toward the bond market.

In other words, I anticipate that the first couple of months probably see the euro trying to get to the 1.1250 level, which is also the 61.8% Fibonacci level from the selloff that we had experienced in the last couple of years. If we break above there, then the 1.15 level will be targeted. I think that’s about as high as we go unless rates go drastically lower. At both of those levels, I would be looking for signs of exhaustion and an acceleration of rate cutting coming out of the Federal Reserve in a panic move, because that will send the EUR/USD pair right back down to where we have seen it test a couple of times, near the 1.07 level. I expect this year to be very similar to last year.