- EUR/USD bulls have recently attempted to maintain movement around and above the 1.0900 resistance to ensure an upward trend reversal.
- However, the upward rebound gains for the EUR/USD pair stopped around the 1.0947 resistance level, the highest for the pair in five months.
- The currency pair will start trading the new important week stable around the 1.0875 level, as Forex investors continue to monitor the reaction to the US Federal Reserve's announcement this week, the tone of the bank's policy statement, and the statements of its governor, Jerome Powell, amidst global political and trade shifts that threaten the future of economic recovery and the new US administration's desire for lower interest rates.
German Stimulus Supports Euro Gains
According to recent forex market trading, the euro rose against other major currencies in general, thanks to news of the German Green Party's approval of Merz's plans. German politicians had overcome a major hurdle by approving an unprecedented spending package proposed by new German Chancellor Friedrich Merz as part of a spending revolution. Overall, the Green Party's approval means a solid majority in the Bundestag to pass the constitutional amendments needed to boost borrowing for infrastructure and defence investment.
The German stimulus plan aims to allocate approximately 2% of GDP annually to infrastructure and defence spending over the next ten years. As a result, according to licensed trading platforms, the EUR/USD pair jumped back above the 1.09 resistance level, and German 10-year bond yields rose 5 basis points to 2.93.
For his part, German Chancellor Merz agreed to allocate approximately 10% of the €500 billion infrastructure spending package to environmental and climate investments, in an effort to win the support of his junior coalition partner. The euro's performance was clearly sensitive to concerns about stalled negotiations. Overall, the constitutional amendment legislation must be passed in the current Bundestag, where the CDU/CSU, the SPD, and the Greens hold the required two-thirds majority. Economists believe these plans will allow Germany to invest up to €1 trillion over the next decade, providing a much-needed boost to Europe's largest economy. They believe this will help lift all restrictions on economic activity. However, this type of spending takes time to plan and implement, meaning it won't be effective until 2026.
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Trading Tips:
Be cautious, EUR/USD gains, unless they gain new positive momentum, may be subject to profit-taking selloffs, and be cautious of the important events of this week.
EUR/USD Forecasts for the Coming Days
In this regard, according to Forex market experts, DNB Markets raised its short-term Euro forecasts, citing a change in investor sentiment and increased optimism about the prospects of the European economy. However, the improved forecast target remains below the current level, reflecting the continued "optimistic" stance towards the US dollar. This upgrade is necessary to reflect the sharp rise in the Euro's value, which saw its biggest rise since 2009. This rise is due to renewed confidence in European growth and the fading of US economic exceptionalism. DNB market experts added in a special note: "The news last week about a German 'whatever it takes' fiscal approach to infrastructure and defense has turned sentiment from pessimism to optimism." However, the bank remains optimistic about the US dollar in the long term, maintaining its 12-month EUR/USD forecast at 1.06, and warning that recent US economic concerns may be exaggerated.
The bank now expects EUR/USD to reach 1.04 in three months, up from a previous forecast of 1.00. EUR/USD may break the 1.12 level – prepare! Morgan Stanley raises its targets, indicating a major shift in currency dynamics.
For its part, DNB Markets dismissed recent US economic growth concerns as overblown and continues to expect the Federal Reserve to raise interest rates in December, contrary to market expectations of a rate cut. While acknowledging the global uncertainty, the bank predicted the US dollar would regain strength as markets adjust to improved US economic fundamentals.
However, the Danish National Bank also highlighted a potential long-term shift in global capital flows, as investors reassess risks associated with US trade policies and international relations. The Danish National Bank warned that "if we are on the cusp of a structural shift in global savings, we are opening the door to a significant repricing of the US dollar beyond what we have already experienced."
Despite this uncertainty, the bank emphasizes the strength of US economic fundamentals and believes that near-term market pricing is overreacting to geopolitical risks.
EUR/USD Technical Analysis Today:
Based on recent trading on the daily chart above, the EUR/USD pair is still on an upward trajectory. Moreover, bulls may need to move towards the psychological resistance of 1.1000 to confirm control of the trend. Simultaneously, this peak will move technical indicators towards strong overbought levels. At the same time, and over the same timeframe, a move towards the support level of 1.0760 will be important for bears in the event of a breakout of the current ascending channel.
We expect the EUR/USD pair to remain within narrow ranges around its current trajectory until financial markets and investors react to the US Federal Reserve's announcement, the Governor's remarks, and a package of important US economic releases, in addition to the trajectory of Trump's trade and political policies.
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