EUR/USD 2026-2027 Outlook: How Far Can the Euro Appreciation Train Go?

The euro’s performance in 2025 has been remarkable—rising from $1.04 at the beginning of the year to $1.16 in November, an increase of 13.5%. This rally broke the long-term depreciation trend of the euro since 2014, but whether it can continue into 2026 and 2027 remains a big question mark.

Core Drivers: Widening Interest Rate Differentials Support Euro Appreciation

Divergence in US and European Central Bank Policies Is the Strongest Support

The Federal Reserve cut interest rates by a total of 50 basis points in September and October 2025, with the current federal funds rate at 3.75-4.00%, and has signaled further cuts into 2026, reaching 3.4%. In contrast, the European Central Bank has completed its rate-cutting cycle, with deposit facility rates remaining at 2.00% since June.

This interest rate differential directly leads to capital flows into euro-denominated assets. Historical data shows that every 100 basis point narrowing in the interest rate gap corresponds to a 5-8% adjustment in the exchange rate. Based on this logic, EUR/USD could rise from the current 1.16 to the 1.22-1.25 range. More aggressive analyses suggest that if Germany’s stimulus measures perform as expected, the ECB might even start raising rates before the Fed in early 2027, further boosting the euro.

US Economic Recovery: A Strong Hedge Against the Dollar

The Trump administration’s economic policies have produced unexpected results. US GDP growth in Q2 2025 reached 3.8%, driven mainly by a surge in AI-related investments.

Tax Reforms and Investment Commitments Boost the US Dollar Fundamentals

The July 4th “Big Package” law made the 2017 tax incentives permanent, maintaining the corporate tax rate at 21%. Coupled with low energy costs, this environment has attracted numerous multinational companies:

• TSMC announced three chip factories in Arizona (investment of $165 billion)
• Samsung invested $44 billion in Texas
• Intel expanded in Ohio with a $20 billion investment

These commitments support the dollar, despite it already depreciating over 10% against the euro since the start of the year.

Trade Policy Duality

The “Day of Liberation” tariffs announced on April 2 initially sparked market panic, with rates reaching up to 145%. However, following Trump’s usual approach, this evolved into a 90-day ceasefire and negotiations. Currently, average tariffs are stable at 15-18%, and the US has secured significant investment commitments from other countries—serving as an indirect economic stimulus.

Europe’s Weak Spot: Can Germany’s $50 Billion Stimulus Deliver?

Germany’s 12-year infrastructure fund is seen as a key catalyst for euro strength, but reality may be more complex.

Energy Cost Traps Are Hard to Break

German industrial electricity prices are 15-20 euro cents per kWh, 2-3 times higher than in the US. Even if the government manages to reduce industrial electricity prices to 5 euro cents/kWh between 2026-2028, this is only a temporary measure. For energy-intensive industries like chemicals, steel, and semiconductors, long-term competitiveness remains uncertain. This directly threatens the multiplier effect of infrastructure stimulus—if core industries continue to relocate, new infrastructure may remain idle.

Implementation Bottlenecks Will Delay Effectiveness

German infrastructure projects take an average of 17 years from planning to completion, with 13 years spent on approval processes. The construction sector currently faces 250,000 job vacancies, implying that execution in 2026-2027 may fall far short of expectations. While stimulus effects may be diluted, costs could also rise.

Defense Spending Might Flow Back to the US

Part of the “special assets” defense expenditure will go toward US procurement (F-35 fighters, Patriot missiles, Chinook helicopters), indirectly stimulating the US economy rather than European industries.

Political Risks Are Severely Underestimated

In the 2026 state elections, the AfD’s support in polls approaches 25%. If the party gains significant power in some states, it could trigger a political crisis, undermining the effectiveness of the grand coalition government. Political uncertainty often pushes up German bond yields, increasing the financing costs of the entire stimulus plan.

France Crisis and Eurozone Growth Stagnation

France’s political situation is also worrying—an administration collapsed within 24 hours in October. The country’s deficit is about 6% of GDP, debt-to-GDP ratio at 113%, and bond yields even higher than Spain’s, signaling clear risk.

Eurozone Q3 growth was only 0.2% (quarter-over-quarter), with an annualized rate of just 1.3%, far below the US’s 3.8% in Q2. The 2026 growth forecast for the eurozone is 1.5%, entirely dependent on the transmission efficiency of German stimulus.

The only positive signal is that inflation remains stable at the ECB’s 2.0% target, with unemployment at 6.3%. But this puts the ECB in a dilemma: if Germany’s stimulus triggers inflation, the central bank will be forced to hike rates, hurting high-debt countries; if it continues easing, debt crises may worsen. Although the ECB has transmission protection tools like the (TPI), they require member cooperation—currently limited.

Market Forecast Divergence: From Consensus Bullish to Highly Disparate

Consensus forecasts for EUR/USD at the end of 2026 remain relatively optimistic:

By 2027, forecasts diverge significantly:

Wells Fargo’s bearish stance is based on the logic that the Fed’s rate-cut cycle ends, US economy accelerates again, and eurozone attractiveness diminishes.

Technical Outlook: Support and Resistance Levels

From a technical perspective, EUR/USD is at a critical juncture. Key support levels are at 1.1550 and 1.1470. Breaking below 1.15 could undermine the bullish setup, potentially triggering a correction toward 1.10-1.12. Conversely, resistance lies in the 1.1800-1.1920 zone; only a sustained move above 1.20 could open the path to 1.22-1.25. The year-to-date volatility exceeds 1600 points, reflecting high uncertainty in this currency pair.

Three Scenario Outlooks

Baseline: 1.10-1.20 Range

Counteracting factors offset each other, with EUR/USD oscillating within 1.10-1.20. The interest rate differential sets a lower bound at 1.10-1.12, while European risks cap at 1.18-1.20. Germany’s stimulus partly succeeds, partly fails; US growth remains moderate at 2-2.2%. Investors buy at lows and sell at highs, but most of the time, the pair stays around 1.14-1.17.

Bearish Scenario: 1.05-1.10 Decline

Post-2026 state elections, worsening German conditions with AfD’s victory and a paralysis of the ruling coalition hinder stimulus implementation. German bond spreads widen, France’s fiscal crisis worsens, and the ECB is forced to cut rates again. Meanwhile, US economy outperforms expectations: AI-driven productivity boosts growth, inflation drops to 2%, and the Fed pauses at 3.50%. EUR/USD could fall to 1.08-1.10, possibly touching 1.05.

Bullish Scenario: 1.22-1.28 Rise

Germany’s stability, successful stimulus, and eurozone growth reaching 2% (a transformative increase for the region) support a rally. The ECB hints at rate hikes in late 2026 or early 2027. Meanwhile, the US faces difficulties: persistent inflation, weakening employment, and stagflation signs. Trump pressures the Fed, and Powell’s successor in May faces mounting pressure. Foreign investors retreat from dollar assets, and EUR/USD breaks above 1.20, entering the 1.22-1.28 zone.

Trading Strategies and Risk Management

Given the high uncertainty, flexible, event-driven strategies are most appropriate. Key points to watch in 2026 include:

• February/March: German state elections results
• May: US Federal Reserve Chair transition
• Throughout the year: France’s budget negotiations
• Ongoing: German stimulus data and US economic indicators

As both the eurozone and US are in volatile phases, risk management should be the top priority. The market currently offers little certainty, requiring traders to stay highly flexible and adapt dynamically.

Unavoidable Risks

German Political Black Swan Tail Risks

The rise of AfD is not just a hypothesis but a real threat indicated by polls. Political deadlock could severely weaken stimulus effects or trigger financial market risk premiums.

Geopolitical Shocks Could Reverse the Outlook

Escalation in Ukraine or new energy crises could immediately boost safe-haven demand for the dollar. While Europe has advanced energy diversification, resilience to new shocks remains unestablished.

US Resilience Is Underestimated

AI-driven productivity growth of 2-3% annually could give the US a structural advantage. A combination of low taxes, cheap energy, and technological leadership continues to attract global firms, strengthening the US’s position.

Final Conclusion

EUR/USD in 2026-2027 stands at a crossroads of multiple forces. Widening interest rate differentials and an overvalued dollar support a lower bound of 1.10-1.12; political fragmentation in Germany, structural energy disadvantages in Europe, and US economic resilience create downward pressures. The key questions are: Can Germany restore political stability after 2026 state elections? Will stimulus measures overcome implementation hurdles and translate into real growth? Can US growth remain resilient? The answers will determine whether the euro enters a new appreciation cycle or the dollar reasserts dominance.