How to position after the euro's historic low? 20 years of data reveal investment opportunities in the next 5 years

Since its official circulation in 2002, the euro has experienced multiple rounds of intense exchange rate fluctuations as the world’s second-largest reserve currency. From the historic high of 1.6038 in 2008 to the record low of 0.9536 in 2022, what economic stories are hidden behind this nearly 40% decline? And is this bottom region truly an investment opportunity for investors?

Reflecting on the 20 Years of Euro’s Big Swings

2008 Financial Crisis pushed the euro to a historic high

In July 2008, the euro soared to a historic high of 1.6038 against the US dollar. Behind this seemingly strong performance, there was a bubble before the crisis.

The US subprime mortgage crisis spread from Wall Street to the global financial system, hitting European banks hardest. Major financial institutions were exposed to derivatives related to subprime loans, with assets rapidly devaluing. Following Lehman Brothers’ collapse, market panic over counterparty risk swept through, freezing the credit system among banks, and cutting off financing channels for businesses and consumers.

Faced with credit tightening and economic recession, European governments launched astronomical stimulus plans, leading to a surge in public debt. Although the European Central Bank (ECB) initiated quantitative easing, this added pressure on the euro to depreciate. Most critically, debt problems in countries like Greece, Ireland, and Portugal erupted subsequently, turning the eurozone debt crisis into a Damocles sword hanging over the euro.

Turning point after nearly 9 years of bear market

In January 2017, the euro fell to around 1.034, hitting a near ten-year low. Coincidentally, it was from this point that the euro began a year-long rebound.

What changed market sentiment? First, the shadow of the euro debt crisis largely dissipated, with eurozone unemployment falling below 10%, and manufacturing PMI breaking above 55, indicating economic improvement. Second, after Brexit negotiations began, the market relaxed—at least with a clear timetable. Third, pro-EU leaders emerged in France and Germany’s elections, boosting investor confidence.

By February 2018, the euro rebounded to 1.2556, hitting a three-year high. But this high didn’t last long, for the reasons were clear: Fed rate hike expectations increased, strengthening the dollar; Italy’s political turmoil dampened market confidence; and eurozone economic growth slowed.

Euro’s historic low caused by Russia-Ukraine war and energy crisis

In September 2022, the euro against the dollar dropped to 0.9536, setting a 20-year low. The main reasons were geopolitical tensions and energy supply chain shocks.

After the Russia-Ukraine conflict, Russia cut off natural gas and oil supplies, causing European energy prices to skyrocket. Natural gas futures even hit record highs, sharply increasing corporate costs and raising recession fears. The Fed’s aggressive rate hikes pushed the dollar index to a 20-year high, with safe-haven funds flowing heavily into the US. The euro was squeezed from both sides—deteriorating economic outlook and a strengthening dollar.

However, a turning point was brewing. The ECB raised interest rates twice in July and September 2022, ending 8 years of negative interest rates. Energy prices gradually declined in the second half of the year, and fears of war eased. These factors laid the foundation for the euro’s subsequent rebound.

Rebound from the historic low—what’s next?

Economic growth: the eurozone’s long-term weakness

Despite continuous decline in unemployment, the eurozone’s economic growth remains sluggish. Manufacturing PMI once fell below 45, and structural issues like aging industry and slowing labor force growth are difficult to resolve in the short term. Additionally, geopolitical risks have become normalized, continuously dampening cross-border investment confidence.

Central bank policies: cautious stance of the ECB provides support

By the end of 2023, the Fed began signaling dovish shifts, indicating an upcoming rate cut cycle. In contrast, the ECB has been more cautious about ending rate hikes, implying that euro interest rates will stay relatively high. Historical experience shows that when the US enters a rate-cut cycle, the dollar index typically declines significantly over 3-5 years, which is positive for the euro.

Global economy: demand drives rise and fall

If the global economy recovers strongly, demand for eurozone goods and services will increase, pushing the euro higher. Conversely, if the economy slips into stagflation, capital will flow into safe-haven assets, and the dollar may strengthen again, putting pressure on the euro.

How should investors position in euros?

Traditional banking channels

Open forex accounts through Taiwanese commercial banks or international banks for trading. The downside is more restrictions, usually allowing only one-way operations.

Forex broker platforms

International CFD platforms offer two-way trading, leverage, and flexible position management, suitable for investors with a clear view on the euro.

Securities firms’ forex services

Some securities brokers also provide euro trading, but their product lines are usually narrower.

Futures market

Trade euro futures through futures exchanges, with good liquidity, but requiring sufficient knowledge of derivatives.

What’s the outlook?

Based on comprehensive analysis of economic fundamentals, central bank policies, and technical factors, the euro may face short-term (within 6 months) pressure, but has room for rebound in the medium term (1-2 years). If the Fed begins to cut rates as expected and no major financial crises occur, the euro’s historic lows are likely to become a medium-term bottom. However, any major geopolitical event could reverse the trend, with funds quickly flowing back to the US, pushing the euro down again.

Key to euro investment is closely monitoring US and eurozone economic data, central bank decisions, and geopolitical developments. Data-driven decisions, not emotional trading.