A major shift may be underway in the EUR/USD pair, potentially signaling the euro’s resurgence after a prolonged period of dollar dominance. Historical patterns suggest that the EUR/USD cycle closely mirrors the U.S. Dollar Index (DXY) cycle in inverse correlation. Given the recent inflection points, we may be entering a phase where the dollar weakens while the euro strengthens.
Historical Cycles & The DXY Correlation
Examining past EUR/USD bottoms, we see a recurring pattern roughly every 15–20 years, aligning inversely with DXY peaks:
Each of these key reversals reflects a broad shift in global monetary policy, trade balances, and economic cycles. If history is repeating, the 2022 dollar peak may have set the stage for a multi-year euro recovery, just as previous DXY tops did.
Key Drivers to Watch
What’s Next?
With the euro holding above historically significant lows and the DXY showing signs of cyclical weakening, traders should watch for confirmations of this potential long-term reversal. If past trends hold, we could be witnessing the early stages of another major EUR/USD bull cycle.
Historical Cycles & The DXY Correlation
Examining past EUR/USD bottoms, we see a recurring pattern roughly every 15–20 years, aligning inversely with DXY peaks:
- 1971: EUR/USD bottomed as the dollar peaked before entering a long decline.
- 1985: The Plaza Accord led to a major DXY peak, followed by a strong euro uptrend.
- 2000: The dollar peaked again, marking another significant euro rally.
- 2022: The most recent DXY peak (~114), coinciding with an EUR/USD low.
Each of these key reversals reflects a broad shift in global monetary policy, trade balances, and economic cycles. If history is repeating, the 2022 dollar peak may have set the stage for a multi-year euro recovery, just as previous DXY tops did.
Key Drivers to Watch
- Monetary Policy Divergence: The Fed's tightening cycle may be nearing its end, while the ECB remains cautious on rate cuts.
- Economic Momentum: If the U.S. economy slows while the Eurozone stabilizes, capital flows may shift towards the euro.
- Investor Sentiment: As DXY trends lower, it could accelerate EUR/USD bullish momentum, as seen in previous cycles.
What’s Next?
With the euro holding above historically significant lows and the DXY showing signs of cyclical weakening, traders should watch for confirmations of this potential long-term reversal. If past trends hold, we could be witnessing the early stages of another major EUR/USD bull cycle.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.