Euro Outlook for 2026

This has been a very choppy pair since the middle of summer, as we have undulated between 1.14 and 1.18. I think there are a lot of different factors at play in this currency pair that will be worth watching in 2026. But first, let’s understand how we got here.

EUR/USD Trends and Movements in 2025

In 2025, the Federal Reserve did shift its policy from aggressive tightening to holding its interest rate, or maybe even a cautious easing bias. That being said, during 2025, almost immediately, we started to see the euro and other currencies rise against the US dollar as traders around the world overpriced the likelihood of interest rate cuts. In fact, one thing that was a consistent factor in trading in 2025 was that the interest rate differential favored the US dollar, although the spreads in the bond markets did narrow over time.

Of course, we did end up getting a couple of cuts, so that did change things somewhat. One place that I find particularly interesting was the September 17th Federal Reserve meeting, which, as I record this, is still the swing high for the entire year because Jerome Powell made it clear that although further rate cuts could be coming, the reality is the Federal Reserve was not on autopilot, and you saw the euro drop pretty significantly from there. When you look at the totality of the year, it is just the market trying to find its footing.

The economic performance in the United States ended up being more resilient than expected. The two most important things, employment and consumer spending, stayed pretty healthy most of the year. Even as it is slowing, it is still not disastrous. It turns out we have more jobs than workers in this country. The European Union has seen stagnation as far as growth, which has been the case for a very long time and could very well be structural. Germany remained a bit of a drag on the market, and as Germany goes, so goes the EU.

Range-bound trading dominated the market for most of the year, again between 1.14 and 1.18. That was definitely the case once we hit about mid-June, and most volatility ended up being tied to FOMC meetings. From a technical analysis standpoint, this market repeatedly struggles with breaking technical resistance. It seems like the market is waiting for more information.

Why Dollar Narratives Drove EUR/USD in 2025

Rallies in this pair typically were dollar-negative narratives. They were not necessarily reasons that would be in favor of the Euro. It was more than people were worried about the dollar. This pair spent most of the year focusing on the dollar, not the euro, because we already know that the eurozone is pretty stagnant, and that is likely to continue.

EUR/USD Forecast for 2026

As far as 2026 is concerned, the Federal Reserve is likely to ease gradually, but it is data-dependent and slower than the market originally thought. Data dependence could change the entire outlook fairly quickly, and the interest rate differential should continue to support the US dollar, although not as much as it once did, certainly not as much as it was in January of 2025 when we were trading around the 1.02 level.

The European Union is in a situation where the European Central Bank might have a little bit of room to tighten, but easing is probably more likely if growth continues to be weak. Most demographics for Europe and leading indicators suggest that we could see an ECB rate cut before it is all said and done. Growth differentials favor the United States, and eurozone fragmentation remains a risk. It is not a major one, but it is still out there.

Persistent geopolitical volatility, including the war in Ukraine, tensions with China, trade, and tariffs, all favor the US dollar. The crazier things get, the better it is for the US dollar.

Bullish Scenario for 2026

There are a couple of scenarios to consider. The bullish scenario for the euro is the lower probability outcome. You would need to see US growth slow significantly, and the Fed would have to cut rates faster than anticipated. That seems unlikely. In fact, I think the US growth starts to accelerate again. The eurozone would need to avoid a recession and stabilize, and you would need a major risk-on environment. Even then, foreigners buying US companies would still have to convert euros or yen into US dollars, creating a feedback loop. If we do break out, a move above 1.20 would likely be sustainable to the upside, but it would be very choppy. It would not be a straight line higher.

Bearish Scenario for 2026

The bearish scenario is the higher probability outcome. There is about a two-thirds to 70% chance that US dollars will remain in more demand. US growth remaining resilient will fuel that, and consumer spending in the United States remains strong. As the consumer goes, so goes the US economy.

The ECB could be forced to cut rates a bit more aggressively. If they cut again, that would be a negative signal. Capital flows continue to favor US assets, and that does not appear likely to change anytime soon. Global uncertainty continues to drive US dollar demand.

The most likely scenario for the euro against the US dollar over the next year is choppy volatility. The euro may drift lower with occasional volatile spikes to the upside. That leads to more short-term or swing-trading approaches, smaller position sizing, and fading rallies into resistance.

A Couple of Levels to Watch

The area between 1.18 and approximately 1.20 is a significant overhang. If we break above 1.20, the euro should continue higher in a choppy manner. Otherwise, fading rallies and potentially targeting 1.14 could be a theme in the first or second quarter of 2026. A move back to 1.02 seems unlikely, but occasional shakeouts are possible.

Macroeconomics and fundamentals are starting to favor the US dollar again. After the impulsive move earlier in the year, this pair has done nothing of note for six months, remaining in a roughly 400-pip range. Watch the 1.20 level, the pace of Federal Reserve easing, and whether the ECB cuts again. Calling this pair choppy next year is not a stretch. If you look at the history of the euro, that is exactly what it does most of the time.

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