- The EUR/USD forecast remains elevated after the German elections
- Germany’s debt policy is now at the center stage for traders.
- US trade tariffs remain a threat to the risk mode.
The EUR/USD forecast remains slightly positive as the new week begins with a fresh buying impulse stemming from German elections. The CDU/CSU alliance led the exit polls with 28.5% of the vote. However, the shock came from AfD, which won the elections with an unprecedented 20.8% vote.
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Markets reacted immediately to the results, and the euro initially spiked against the US dollar to 1.0528 on speculation of what the new government would likely be. However, as no single party could get a majority vote, the uncertainty soon crept in.
For currency traders, one word that matters is debt brake. Merz’s conservatives stood by strict fiscal discipline, while the Greens wanted easing to stimulate the economy. The spending could ignite the growth, but at the cost of a higher debt. The CDU/CSU will likely join with AfD to form a government. Hence, a strict monetary policy could be expected, eventually boosting the Euro.
However, what is more important is how soon the coalition will be formed and the new government will take charge. Delays may add uncertainty to the view.
Regarding geopolitics, German Chancellor Olaf Scholz and Ukraine’s Zelenskiy agreed to initiate peace talks. However, Trump said that Ukraine does not have any cards to play.
The US dollar stayed weak after last week’s PMI readings showed a stall in business activities. The consumer sentiment and housing markets also showed signs of weakness. The looming tariffs and the Fed’s spending cuts weigh on economic activity.
However, the tariff threats and the Fed’s cautious stance could sour the risk sentiment and strengthen the US dollar.
Key Events to Watch
- German ifo Business Climate
EUR/USD Technical Forecast: Bulls Aiming for 1.0550
The EUR/USD remains well-bid above the 30-period SMA on the 4-hour chart. It shows a strong uptrend that is likely to continue. The pair hit a fresh multi-week high at 1.0528 before briefly retreating. The engulfing candle indicates that selling is limited while bulls could form another higher high. The RSI is at around 60.0 level, which is still far from overbought territory.
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As long as the price stays above 1.0500, the bulls may attack the 1.0550 level ahead of 1.0600. On the flip side, the price retreating below 1.0500 could test 1.0475 ahead of 1.0450.
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