- Ahead of the release of Eurozone inflation figures and the announcement of the US Federal Reserve's policy, the EUR/USD pair is holding steady around the 1.0955 resistance level, the pair's highest level in nearly five months.
- Amid the upward momentum, forex market analysts believe the euro could find additional support if the German Bundestag approves the spending package.
On the monetary policy front, traders have reduced their expectations for the European Central Bank to cut interest rates this year, now expecting only two cuts, likely in April and June. Furthermore, interest rates are not expected to fall below 2%.
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German Stimulus Continues to Support Euro Strength
According to Forex market trading, the Euro price has reached its best levels against the US Dollar and the British Pound since October, ahead of a vote in the German Bundestag to amend the country's constitution and allow the government to borrow more money for infrastructure and defence investment. In this regard, the CDU/CSU, SPD, and Green parties, led by Friedrich Merz, will unite to achieve the three-quarters majority needed to amend the constitution. Analysts believe that reforming Germany's "debt brake" will allow the country to invest up to one trillion Euros over the next decade. Accordingly, German economic growth expectations are significantly increased through increased public spending on defence and infrastructure.
Before the German vote, the Euro is witnessing a new buying wave that allows it to extend its expected rise in 2025. According to licensed trading companies' platforms, the EUR/GBP exchange rate is 0.8426, with the best price for Pound buyers being 0.8397. The EUR/USD exchange rate is 1.0955, with the best price for Dollar buyers being 1.0905.
The Euro Exchange Rate Will Impact Growth Forecasts
The EUR/USD pair recently hit its highest level since early October 2024, possibly supported by the EUR/JPY pair, as rising US bond yields overnight pushed the USD/JPY pair closer to the psychological resistance of 150. The USD/JPY exchange rate is now elevated compared to the two-year interest rate differential it has recorded in recent years, likely indicating the importance of positioning.
Trading Tips:
Keep in mind that the fate of the current EUR/USD gains will be determined by the reaction to today's important events and economic data, so be cautious.
Features of the German Stimulus Plans
Key Components of the German Plan:
- Defence Spending: The proposal seeks to allocate funds exceeding 1% of Germany's GDP to defence, intelligence, and aid to Ukraine.
- Infrastructure Investment: Includes a 500 billion Euro infrastructure fund to modernize the country's infrastructure and stimulate economic growth, with 100 billion Euros allocated to climate protection and economic transformation initiatives.
- Debt Rule Amendment: To facilitate this increase in spending, the plan proposes easing the debt restrictions set out in the constitution, allowing for increased borrowing beyond current limits.
This initiative is spearheaded by Merz, leader of the conservative Christian Democratic Union (CDU) party and likely to be Germany's next chancellor. The proposal has received support from the Social Democratic Party (SPD) and the Greens, who, after negotiations, agreed to support the plan in exchange for funding for climate and economic measures. Overall, the major parties hold around 70% of the votes in the lower house of parliament, meaning they will easily pass the required two-thirds majority. Next Friday, the legislation will move to the upper house, the Bundesrat, which has a more complex system that includes state leaders. Once again, most analysts believe the bill will pass.
EUR/USD Technical Analysis Today:
According to the daily chart, the EUR/USD pair is still moving within an ascending channel. Bulls will strengthen their grip by breaching the psychological resistance at 1.1000, which will in turn move technical indicators towards strong overbought levels, led by the Relative Strength Index (RSI) and the MACD. Therefore, the EUR/USD pair may be subject to profit-taking if the US dollar rises again. Conversely, on the same timeframe, as previously mentioned, a return below the 1.0770 support level will be important for bears to initiate a move.
The EUR/USD will be affected today by the announcement of the Eurozone inflation figures, then the US Federal Reserve's policy announcement and statements by Fed Governor Jerome Powell, in addition to the reaction to the expansion of the US trade wars."
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