EUR/USD 2026-2027: Between Interest Rate Advantage and European Risks – What Traders Need to Know Now

The EUR/USD pair experiences a resurgence in 2025. From $1.04 in January to $1.19 in September – an appreciation of over 13% breaks a trend that has persisted since 2014. While the performance appears impressive, Europe’s structural problems and the surprising resilience of the US economy under Trump raise important questions: Will this Dollar weakness continue, or will the dominance of the greenback return?

What traders should know about the current EUR/USD position

Looking ahead to November 2025, the pair trades at $1.16 – a consolidation phase after extreme volatility. The trading range over 1,600 pips highlights uncertainty. Technically, two critical zones are evident:

• Support: 1.1550 and 1.1470 – if the pair drops below these levels, a test of the 1.10-1.12 zone could follow
• Resistance: 1.1800-1.1920 – a sustained break above 1.20 would open the way to 1.22-1.25

These boundaries set the framework for the next two years.

The interest rate divergence: The strongest bullish argument for the euro

The core of the EUR/USD story lies in monetary policy divergence. The Fed cut rates by a total of 50 basis points in September and October 2025 and signals further cuts to 3.4% by the end of 2026 (currently 3.75-4.00%). Meanwhile, the ECB has completed its cycle – the deposit rate has remained unchanged at 2.00% since June.

This setup creates a structural advantage for the euro. Historically, narrowing interest rate spreads by 100 basis points lead to a currency adjustment of 5-8%. Calculations suggest EUR/USD could climb from 1.16 to 1.22-1.25. Some analysts even expect the ECB to raise rates again in 2027 before the Fed – a scenario that would further boost the euro.

Trump’s economic policy: US strength with downsides

The second Trump administration shows a mixed record with some positive effects so far:

Tariff strategy and capital flows: “Libération Day” in April, with announced tariffs up to 145%, caused stock market turbulence but ended with a 90-day pause. Average tariffs now stand at 15-18% – above historical levels but below maximum demands. The key outcome: trading partners committed to US investment pledges worth billions to secure tariff benefits. This supports the domestic economy without massive disruption.

Tax and technology driving growth: The “One Big Beautiful Bill Act” made 2017 tax cuts permanent – corporate tax remains at 21%. Coupled with low energy costs, this attracts massive chip investments:

• TSMC is building three factories in Arizona ($165 billion)
• Samsung invests $44 billion in Texas
• Intel expands in Ohio ($20 billion)

GDP growth reached an impressive 3.8% in Q2 2025, driven by AI boom and investments. However: US debt continues to rise (deficit in 2026 about 6% of GDP), and Trump’s attacks on Fed independence undermine international investor confidence. The dollar lost over 10% against the euro in 2025 – Trump’s plan to weaken the dollar has worked so far, but the long-term sustainability remains uncertain.

Germany: 500-billion stimulus – hope or overexpectation?

Germany’s infrastructure fund is portrayed as a game-changer for the eurozone. The reality might be less impressive. Four issues limit its effectiveness:

1. The energy cost trap: German electricity prices are 30-35 cents/kWh for households, 15-20 cents/kWh for industry – two to three times higher than in the US. An industrial electricity price of 5 cents/kWh for 2026-2028 only addresses symptoms. Structurally, Germany remains unattractive for energy-intensive sectors (chemicals, steel, semiconductors) – already relocated firms are unlikely to return.

2. Implementation trap: German infrastructure projects take on average 17 years from planning to completion (including 13 years for permits). The construction sector reports 250,000 open positions – a structural bottleneck that significantly reduces the expected multiplier effects.

3. Military spending for US arms: Part of defense expenditure flows into F-35, Patriot, and Chinook – mainly US products. This stimulates the US economy more than German value creation, reducing the package’s impact.

4. Political instability: The 2026 state elections could make the AfD the strongest party in several states (currently around 25% nationwide). A dysfunctional government could block implementation and increase financing costs – German government bonds would carry higher risk premiums.

Eurozone: Moderate data under political pressure

France shows structural weakness. October 2025 saw the collapse of a government within 24 hours. The deficit stands at 6% of GDP, debt at 113%. French bonds yield higher than Spanish – a red flag.

Eurozone growth in Q3 2025 was only 0.2% quarter-on-quarter (annualized 1.3%), while the US achieved 3.8%. For 2026, only 1.5% growth is expected for the eurozone. The small bright spot: inflation at 2.0% meets ECB target, unemployment at 6.3%.

This creates a dilemma for the ECB: if German stimulus fuels inflation, the ECB would need to raise interest rates – but highly indebted countries cannot afford that. The ECB faces an almost unsolvable dilemma: either inflation rises significantly, or a debt crisis ensues.

Bank forecasts: Bullish consensus with limits

By the end of 2026, there is broad consensus on further euro appreciation:

For 2027, expectations diverge more:

Wells Fargo remains an outlier – the bank expects a depreciation due to ongoing US strength.

Three realistic scenarios for the next two years

Base Case – EUR/USD 1.10-1.20 range: Counteracting factors balance out. The rate divergence supports the euro with a lower bound of 1.10-1.12. European risks limit upside potential to 1.18-1.20. Germany’s development is mixed – stimulus is partially implemented but also partly fizzling out. The US grows moderately at 1.8-2.2%. Traders buy at 1.10-1.12, sell at 1.18-1.20, with the pair usually oscillating between 1.14 and 1.17.

Bear Case – EUR/USD 1.05-1.10: 2026 state elections bring success for the AfD, grand coalition becomes dysfunctional, stimulus gets stuck. German bund spreads widen, France’s crisis escalates, ECB cuts rates again. Simultaneously, the US surprises positively: AI boom boosts productivity, inflation falls to 2%, Fed pauses at 3.50%. EUR/USD drops to 1.08-1.10, possibly testing 1.05.

Bull Case – EUR/USD 1.22-1.28: Germany stabilizes, stimulus is quickly implemented, France relaxes. Euro growth reaches 2% – transformative for the zone. ECB signals rate hikes in 2027, euro continues to be driven higher. US crisis deepens: inflation remains sticky, labor market weakens, stagflation looms. Trump’s attacks on the Fed, with Powell’s succession in May 2026, intensify. Foreign investors reduce US holdings. EUR/USD breaks through 1.20 and moves into the 1.22-1.28 zone.

Critical events traders should watch in 2026

• Germany state elections: February/March – crucial for stimulus implementation
• Powell’s successor: May 2026 – signals new Fed course
• France’s budget developments: ongoing – risk to euro stability
• German stimulus data: Q2-Q4 2026 – shows effectiveness
• US economic data: monthly – divergence or convergence?

What risks are market participants overlooking?

Germany risk underestimated: The political crisis is not hypothetical. Grand coalition problems are highly likely and could significantly reduce stimulus effects.

Geopolitical shocks: Escalation in Ukraine or a new energy crisis would boost dollar inflows. Europe’s energy diversification is advanced but not immune.

US resilience underestimated: AI boom could deliver 2-3% annual productivity gains – a structural advantage. Low taxes, cheap energy, technological dominance – the US remains attractive.

Conclusion: EUR/USD in a tension field – volatile and uncertain

The EUR/USD forecast for 2026-2027 is shaped by competing forces. Monetary policy divergence favors the euro and establishes a lower bound of 1.10-1.12. The dollar is overvalued by (23%), and capital flow reversals support this. At the same time, political fragmentation in Germany, structurally high energy costs, and US economic strength raise questions.

The key questions are: Can Germany stabilize after 2026? Will stimulus work despite hurdles? Will the US economy remain resilient? The answers will determine whether a new euro era begins – or whether the dollar reclaims its dominance impressively.

Traders should stay flexible, trade event-driven, and prioritize risk management. Adaptability is the order of the day in this environment.