The EUR/USD story of 2025 was wild—moving from 1.04 to 1.16 in just a few months. Now comes the question that many underestimate: Will the euro fall further, or is this only the beginning? Honestly, the answer is far more complex than most analysts admit.

Sure, the interest rate differential between the Fed and the ECB (EZB) theoretically favors the euro. The Fed continues to cut (target 3.4% by the end of 2026), while the ECB (EZB) is at 2.0% and does nothing more. Classic textbook mechanics—tighter spreads should lead to a stronger euro. Historically, a 100bp narrowing corresponds to roughly 5–8% appreciation. That would imply 1.22–1.25. Many banks are bullish on this: Morgan Stanley, Goldman Sachs, and BNP Paribas all see 1.25 for the end of 2026.

But here’s where it gets interesting. Germany and the eurozone are structurally under pressure. The German stimulus of over 500 billion—sounds impressive, but could be a paper tiger. Energy costs are the problem: 30–35 cents/kWh for households, while industry pays 15–20 cents. That’s 2–3x higher than in the US. An infrastructure package doesn’t fix that. Energy-intensive industries—chemicals, steel, semiconductors—remain structurally unattractive. And then there’s implementation: German infrastructure projects take an average of 17 years from planning to completion. The construction industry reports 250,000 open positions. That’s not exactly a recipe for quick effects.

France is another uncertainty factor. The government is collapsing, the deficit is at 6% of GDP, and the debt-to-GDP ratio is 113%. French government bonds yield higher than Spanish—this is a warning signal. In Q3, the eurozone grew by only 0.2% qoq. That’s weak compared with the US at 3.8% annualized.

And then there’s Trump: tariffs, tax reforms, the AI boom. TSMC is building three chip fabs in Arizona (165 billion), Samsung 44 billion in Texas, and Intel 20 billion in Ohio. That’s real economic strength. The dollar has lost 10% since the start of 2025, but US fundamentals are stronger than many think.

Technically speaking: support at 1.1550 and 1.1470. A drop below 1.15 would challenge the bullish narrative. Then it could move toward 1.10–1.12. On the upside, 1.1800–1.1920 is important—breakthrough above 1.20 would open the door to 1.22–1.25.

I see three realistic scenarios: In the base case, EUR/USD trades between 1.10 and 1.20, mostly 1.14–1.17. Headwinds and tailwinds offset each other. In the bear case—and this isn’t unrealistic—the euro keeps falling. If the 2026 state elections strengthen the AfD, the grand coalition becomes dysfunctional, and the stimulus gets stuck, while the US surprises, EUR/USD could fall to 1.08–1.10. Some even talk about 1.05. In the bull case, Germany stabilizes, the stimulus takes effect, France eases, the ECB (EZB) signals interest rate hikes in 2027, while the US slides into stagflation—then 1.22–1.28.

The risks are being underestimated. The Germany risk is real, not theoretical. Geopolitical shocks (Ukraine escalation) would bring dollar inflows. US resilience could also be underestimated—2–3% annual productivity gains from the AI boom are structural.

Conclusion: Volatility remains. The interest rate differential creates a floor at 1.10–1.12, but political fragmentation in Germany, high energy costs, and US strength raise real questions. The next 18 months decide: Can Germany stabilize after the elections? Does the stimulus work despite obstacles? Will the US economy remain resilient? Depending on the answers, we’ll either see renewed euro strength or the dollar reclaiming its dominance. Flexibility and risk management are the order of the day.