Euro’s Path to Dollar Parity: Will EUR/USD Hit 1.0?

EUR/USD Exchange Rate Trends as Key Economic Data Looms

The Euro to Dollar exchange rate (EUR/USD) is edging closer to parity, but upcoming U.S. job data could provide temporary relief if it falls short of expectations.

Last week, the Euro slumped to a two-year low against the U.S. Dollar, with signs pointing towards further declines. EUR/USD touched 1.0222 before rebounding slightly to 1.0353, marking a second consecutive daily gain as the first full week of 2025 trading began.

The currency pair is currently testing resistance at the nine-day Exponential Moving Average (EMA), a technical barrier that has limited upward movement since October. The ongoing downward trend suggests that the Euro remains under heavy selling pressure, with limited prospects for a sustained recovery.

Bearish Outlook for EUR/USD Amid Market Uncertainty

Market sentiment remains bearish due to a combination of technical and macroeconomic factors. While short-term consolidation around 1.03-1.04 is possible, the broader trend suggests further downside potential.

Despite the holiday season, EUR/USD’s decline continued as European gas prices surged to a two-year high, intensifying economic challenges for the Eurozone. In contrast, the U.S. economy remains resilient, bolstered by strong economic data and a stable energy market. The divergence in economic outlooks between Europe and the U.S. further strengthens the Dollar.

Key Data Releases That Could Impact EUR/USD

The upcoming U.S. non-farm payroll report is the most significant economic event this week. A strong jobs report could push EUR/USD to fresh lows. Analysts expect U.S. job gains to slow slightly, with a forecast of 180k in December compared to 227k in November.

If the data meets expectations or falls short, the U.S. Dollar could weaken, offering some relief to the Euro. However, if job figures surpass expectations, EUR/USD could break below 1.02.

Before Friday’s payroll report, traders will closely monitor U.S. Federal Reserve statements and economic indicators:

Monday: Fed’s Cook comments on interest rates, U.S. S&P Global PMI data.

Tuesday: ISM PMI report and U.S. job openings data.

Wednesday: Fed’s Waller speaks; Fed’s December meeting minutes released.

Thursday: Fed officials Harker, Bowman, and Schmid provide updates on monetary policy.

Political and Inflationary Pressures on the U.S. Dollar

As Donald Trump prepares for a possible return to the White House, analysts predict his policies could fuel inflation, influencing Federal Reserve decisions. This outlook strengthens the Dollar, reinforcing expectations for a prolonged EUR/USD downtrend.

Eurozone Economic Data and ECB Policy

On the Eurozone front, German inflation data for December will provide insights into broader Eurozone inflation trends. Last week, the Euro saw a brief boost after Spanish inflation exceeded forecasts. If German data follows suit, it could influence EUR/USD movements.

Analysts predict Eurozone HICP inflation will rise to 2.4% in December from 2.2% in November. However, this is unlikely to shift expectations for further European Central Bank (ECB) interest rate cuts, limiting potential Euro gains.

Danske Bank’s Magnus Poulsen notes, “We expect core inflation to remain aligned with the ECB’s 2% target, reinforcing the case for continued rate cuts.” Thursday’s ECB Economic Bulletin is expected to highlight persistent economic pressures, further supporting the need for policy easing.

EUR/USD Forecast: What’s Next?

With U.S. economic strength and continued uncertainty in Europe, EUR/USD remains on track for further declines. Investors should watch for key data releases and central bank signals that could dictate the next move. While short-term rebounds are possible, the Euro’s journey toward parity with the Dollar appears inevitable.