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The EUR/USD Price Prediction 2022. The Bulls or the Bears, Who Will Prevail?

15 December 2021 Written by Feng Zhou  Senior Market Analyst Feng Zhou

Euro/US Dollar (EUR/USD), for which we will provide the price forecast for the year 2022, is the most actively traded currency pair on the foreign exchange market, also known as Forex or FX, the largest over-the-counter (OTC) market for speculative activities. Forex, for its part, is inarguably the biggest and the most liquid financial market that is worth, according to various estimates, around $2 quadrillion in total, which is nearly three times larger than the global gross domestic product (GDP) that is estimated at approximately $90 trillion.

These figures alone showcase the immense importance of the foreign exchange market for the world’s economy and the seamlessness of financial operation between banks, traders, brokers, and other financial institutions that take place on a daily basis, with nearly half a dozen trillion USD forming an average-weighted FX daily trading volume. In comparison, the current size of the Forex market is over 50 times larger than that of the New York Stock Exchange (NYSE).

In this whirligig of money, the EUR/USD trading pair takes a very special place because it’s one of the seven major Forex pairs, along with USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD, and USD/CHF, that take up nearly 85% of all daily transaction across the world, related to the FX market. Out of the currencies that form that Euro/US Dollar pair, USD is the currency that is exchanged most actively among all market participants, constituting nearly 90% of all global transactions. The Euro, on its part, is the second most traded foreign currency, with the percentage of active daily trades in both directions (buying and selling) exceeding 30%, which is twice as much as the distribution stats of its two closest followers: Japanese yen (JPY) and pound sterling (GBP). And to further highlight the significance of the Forex trading pair under review, it must be noted that over half of all daily FX transactions take place either in the United States or the United Kingdom. That’s the reason why it’s of the utmost importance to follow the developments on this particular market even if EUR/USD isn’t your favorite trading pair because due to its size, this market exerts a tangible impact on other pairs and on the Forex market in general.

The thorough analysis and prediction of the occurrences on the EUR/USD market require a great deal of time and effort, like the analysis of both historical and ongoing price action, market data, and fundamental factors like changes in interest rates, etc. The following comprehensive EUR/USD price prediction for 2022 is designed to take the hassle out of your Forex trading experience. Thanks to our thoroughly tested Forex price prediction model, you will gain the understanding of:

Let’s start off with the analysis of the current state of affairs on the EUR/USD market, where the price is holding the position at 1.15972.

Judging from this data, we can conclude that the EUR/USD pair has been in the state of downtrend since the beginning of 2021 and will remain in this state until the price breaks this year’s high at 1.23480 to the upside and keeps on going in that direction or turns this level into support. 

But being armed with numbers and percentages isn’t enough to comprehend the nature of the Forex market and the forces that make the price move on large time frames. Fundamental analysis plays a key role in Forex trading; it’s perhaps even more important here than in any other financial market because there is often a direct correlation between price fluctuations in the EUR/USD pair, and the majority of other pairs for that matter, with events in geopolitics as well global and domestic economies. There are also the so-called “black swan” events, the unpredicted occurrences that have a drastic impact on the global political and economic systems and go beyond the scope of economic and price prediction models. For instance, the September 11 attacks or the outbreak of the COVID-19 pandemic are considered black swan events that can’t be predicted even by the most sophisticated deep learning algorithms.

Other than that, the behavior of Forex pairs usually complies with the laws of fundamental analysis that take into account the policies dictated by central financial authorities in a given country. In the case of EUR/USD, these policies are formed by the European System of Central Banks (ESCB), which is composed of the European Central Bank (ECB) together with national banks of all member-states that are united into the Eurosystem, and the Federal Reserve System of the United States (FED) that is made of 12 Federal Reserve Banks, respectively. The primary function of these and other central banks is to keep the inflation in check in order to maintain sustainable economic development within a given country or a union of nations.

The Federal Reserve usually exerts its impact on foreign currency markets through the funds rate (another term for interest rate) that is determined by its Board of Governors. The FED announces its decision related to funds rate every six weeks, or eight times a year, and this decision usually has a tangible impact on the price of USD for many weeks ahead. The European Central Bank comes up with the decision regarding interest rates on a monthly basis.

Basically, the interest rate reflects the authority’s view on the economic development of the country over a recent period of time and more often than not causes the volatility spike on EUR/USD and other Forex markets. But the thing to remember here is that that announced rate itself is of secondary importance; it’s the conclusions made by Forex traders on the basis of suggestions and hints made in the announcement, which are often referred to as “forward guidance” as well as the expectations regarding the future fluctuation of interest rate that really move a Forex market in one direction or another, commonly known as “hawkish” or “dovish” approaches. The concept here is quite simple: if the interest rate is expected to rise in the near- or mid-term future, the market sentiment becomes more bullish (hawkish) and vice versa, the anticipation of decreasing interest rate would put the “doves” in the driver’s seat. This is caused by the fact that the increasing interest rates tend to have a positive effect on the value of a national currency, which, in effect, incentivizes the inflow of foreign capital. 

The inflation rate is another crucial factor that has a significant impact on the behavior of the Forex pair under review as it’s directly correlated with the interest rate. To put it simply, the lower the inflation, the higher is the value of a national currency and its purchasing power, as well as the consumer price index (CPI), which is duly reflected on the price chart. This metric is also directly tied to the government debt, the size of which also affects the interest of foreign investors in a certain economy and currency.                  

International economic policies and government announcements are other factors that influence foreign currency rates. They could range from the imposition of trade tariffs on foreign goods to the disclosure of unemployment data or non-farm payrolls, which is of particular importance in the United States, and the tempo of growth or decline of GDP. A savvy Forex trader should also keep an eye on trade wars, significant geopolitical shifts like Brexit for the EU, and other signs of political instability that could provoke the loss of confidence in the underlying currency.

Having outlined all fundamental factors, allow us to move on to an extensive price prediction of the EUR/USD pair that encompasses the entire year 2022. For this forecast, we have carried out an in-depth fundamental analysis and also employed a sophisticated AI-based algorithm with deep learning features.

This comprehensive EUR/USD price prediction is composed to offer you a quick scan of the ongoing occurrences in the given market with relation to historical price data, but most importantly, it provides the broadest possible perspective on the path that this Forex pair will take over the next year. Despite the potential turmoil on other financial markets, EUR/USD will remain the most liquid Forex pair that always provides opportunities for profit-making, and, hopefully, this forecast will help you maximize those profits. 



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