EUR/USD 2026-2027: After a spectacular rise – How far can the recovery go?

The euro experienced a remarkable appreciation phase in 2025: rising from 1.04 USD at the beginning of the year to 1.16 USD currently – an increase of over 13%. But can this momentum continue or is the currency pair heading toward consolidation? Our analysis shows: the answer lies in the tension between three competing forces.

Where does EUR/USD stand currently – and how did it get there?

The movements were turbulent: EUR/USD traded at 1.0243 (20-year low) in January, then surged in April and marked the year’s high at 1.1868 in mid-September. With the current quote at 1.16, the pair is stabilizing after traversing a trading range of over 1,600 pips.

What drove the euro higher?

Several factors act in concert: Trump’s aggressive tariff policies, significant interest rate cuts by the Fed, stable rates of the ECB, and Germany’s 500-billion infrastructure package created a euro-friendly environment. The pair broke through its downward trend since 2014 – a technical signal with signaling effect.

Technical reference points for traders:

Upward: The zone 1.1800-1.1920 acts as an important resistance. A break above 1.20 could open the way to 1.22-1.25.

Downward: Supports are at 1.1550 and 1.1470. A break below 1.15 would question the bullish scenario and could trigger declines toward 1.10-1.12.

The core of the appreciation: interest rate differentials and their mechanics

The main argument for further euro strength is: interest rate differentials. The Fed cut a total of 50 basis points in September and October and signals further cuts to 3.4% by the end of 2026. The ECB has already ended its reduction cycle – the deposit rate has remained at 2.00% since June.

The mathematical logic:

Historically, narrowing interest rate spreads by 100 basis points lead to a currency adjustment of 5-8%. With the current spread, EUR/USD could climb from 1.16 to 1.22-1.25. Some analysts even expect the ECB to signal rate hikes in 2027, should Germany’s stimulus bear fruit. This would further amplify the effect.

The other side of the coin: why the euro could also stumble

America’s economic resilience

US GDP growth reached a strong 3.8% in Q2 2025, driven by massive AI investments. At the same time, the government secured investment commitments worth billions through tariff negotiations:

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

The “One Big Beautiful Bill Act” of July 4 made corporate tax cuts permanent (Corporate tax 21%). Combined with cheap energy, this attracts massive capital. The problem: deficits and debt levels are growing – the deficit will reach about 6% of GDP in 2026.

Germany – The stimulus might be overestimated

The 500-billion infrastructure package is hailed as a game-changer. Reality may be more nuanced:

Energy cost trap: German electricity prices for industry are at 15-20 cents/kWh – two to three times higher than in the US. An industrial electricity price of 5 cents/kWh for 2026-2028 only alleviates symptoms. For energy-intensive sectors (chemicals, steel, semiconductors), Germany remains structurally unattractive.

Implementation problems: German infrastructure projects take on average 17 years – including 13 years for permits. The construction industry reports 250,000 open positions. This inefficiency significantly reduces the expected multipliers.

Political risk: State elections in 2026 could make the AfD the strongest force in federal states (currently 25% nationwide in polls). A dysfunctional grand coalition would block stimulus implementation and widen German spreads.

External dependencies: Parts of military spending flow into US systems (F-35, Patriot, Chinook) – which stimulates America more than German value creation.

France and the Eurozone fragmentation

France’s political instability remains concerning: a government collapsed in October 2025 within 24 hours. The deficit is around 6% of GDP, and the debt ratio is at 113%. French government bonds now yield higher than Spanish – a warning sign.

The Eurozone grew only 0.2% qoq (1.3% annualized) in Q3 2025 – significantly behind the US. For 2026, only 1.5% is expected. Inflation is at 2.0% (ECB target), unemployment at 6.3%. The ECB could face a dilemma: if German stimulus proves too inflationary, it would need to hike – which burdens highly indebted countries.

Bank forecasts: consensus with outliers

By the end of 2026, there is broad agreement among major analysts – further EUR/USD increase:

For 2027, the range widens:

The pattern is clear: bullish camp dominates, but Wells Fargo positions itself defensively.

Three possible scenarios for 2026-2027

Base scenario: Calm fluctuations between 1.10 and 1.20

The opposing forces are roughly balanced. EUR/USD oscillates between 1.10-1.12 (supported by interest rate differentials) and 1.18-1.20 (limited by European risks). Germany implements part of its stimulus, US growth is moderate at 1.8-2.2%. Investors buy on dips and sell on highs – the rate mostly ranges between 1.14 and 1.17.

Bear scenario: EUR/USD falls to 1.05-1.10

The AfD election results in 2026 destabilize the government, stimulus packages stall. German spreads widen, France’s fiscal crisis escalates, and the ECB must cut rates. Meanwhile, the US surprises positively: AI boom boosts productivity, inflation falls to 2%, and the Fed pauses at 3.50%. Result: EUR/USD erodes to 1.08-1.10 and could even test 1.05.

Bull scenario: Euro rally to 1.22-1.28

Germany stabilizes, stimulus is implemented swiftly, France’s situation eases. Eurozone GDP growth reaches 2% (transformative for current conditions). The ECB signals rate hikes for 2027 at the end of 2026. Simultaneously, the US crisis deepens: persistent inflation, weak labor market, stagflation threat. Powell’s successor in May 2026 intensifies Trump’s Fed criticism. Foreign investors reduce US positions, EUR/USD breaks above 1.20 and climbs toward 1.22-1.28.

Critical events that will determine the direction

2026 brings several milestones:

• State elections in Germany – crucial for stimulus implementation
• Powell’s successor (May 2026) – signals Fed policy
• France’s fiscal development – fragmentation risk
• German stimulus data – validates growth scenario
• US economic reports – determine Fed pause or further cuts

Trading recommendations: flexibility before commitment

Given the uncertainty, a event-driven approach with strict risk management is advisable:

• Range trader: buy at 1.10-1.12, sell at 1.18-1.20
• Trend follower: watch for a break above 1.20 for bullish position or below 1.15 for bearish
• Volatility player: exploit high swings but with tight stops

Conditions change rapidly – flexibility is key.

Main risks at a glance

Germany risk underestimated: An AfD surprise in elections could overturn the entire stimulus story and trigger a political crisis.

Geopolitical shocks: Escalation in Ukraine or a new energy crisis would trigger dollar inflows despite Europe’s diversification progress.

US resilience underestimated: The AI boom could deliver 2-3% annual productivity gains. Coupled with low taxes, cheap energy, and technological dominance, the US remains unrivaled.

Conclusion: Two winners, one loser?

The EUR/USD pair faces a structural dilemma in 2026-2027. Interest rate spreads support the euro and set a floor at 1.10-1.12. The dollar valuation is estimated to be 23% overvalued, favoring EUR/USD. But Germany’s political fragmentation (potential crisis 2026), high structural energy costs, and US economic strength (AI, taxes) raise questions.

The key will be: can Germany achieve political stabilization after the 2026 elections? Will the stimulus work despite hurdles? Will the US economy remain resilient?

The answers will determine whether we see a new EUR/USD dynamic – or if the dollar reclaims its dominance.