EUR/USD: Limited Upside Potential in 2025, Says Scotiabank

 EUR/USD: Limited Upside Potential in 2025, Says Scotiabank

The EUR/USD currency pair is expected to face challenges in sustaining upward momentum, according to Scotiabank’s latest market analysis. Despite recent efforts to climb higher, several factors suggest that the euro’s gains against the U.S. dollar may remain constrained as we head deeper into 2025.

Key Factors Behind Limited Upside

1. Economic Divergence Between the Eurozone and the U.S.

One major hurdle for the euro lies in the differing economic trajectories of the Eurozone and the United States. While the Eurozone continues to grapple with sluggish growth and inflationary pressures, the U.S. economy remains relatively robust. This divergence reinforces the dollar’s appeal as a safe-haven currency, limiting the euro’s ability to gain significant ground.

2. Interest Rate Policies

The European Central Bank (ECB) has adopted a cautious stance on further rate hikes due to weakening economic indicators across the Eurozone. On the other hand, the Federal Reserve maintains a more hawkish outlook, aiming to keep inflation under control. This divergence in monetary policy creates a favorable environment for the dollar, restricting the euro’s upward potential.

3. Market Sentiment and Risk Appetite

The current global economic climate is marked by uncertainty, ranging from geopolitical tensions to concerns about slowing global growth. In such an environment, investor sentiment tends to favor the dollar over the euro, given its perceived stability. The risk-averse market sentiment further undermines the euro’s ability to stage a sustained rally.

Short-Term Outlook for EUR/USD

Scotiabank notes that EUR/USD could continue trading within a relatively narrow range in the near term, with resistance levels around 1.08 to 1.10 likely to cap upward movements. Support levels are expected near 1.05, with a potential downside if Eurozone economic data disappoints further.

Technical indicators also align with this cautious outlook, as momentum oscillators show limited bullish strength. Traders are advised to remain vigilant, especially during major economic data releases and central bank announcements that could trigger volatility.

Conclusion

While the EUR/USD pair may experience occasional bouts of upward momentum, its upside potential remains limited due to economic and policy divergences, coupled with a cautious market sentiment. For traders, monitoring key levels and staying informed about macroeconomic developments will be essential for navigating the uncertain terrain of the forex market in 2025.