Key Point
- EUR/USD trades near 1.0405, holding gains as German fiscal expansion fuels euro strength.
- Investors await the ECB decision, with a rate cut expected but future policy guidance under scrutiny.
Euro Holds Ground as German Fiscal Expansion Lifts Sentiment
The EUR/USD pair traded near 1.0405 on Thursday, maintaining its recent gains as the euro found support from rising German bond yields and expectations of increased government spending. Germany’s proposed €500 billion ($539.85 billion) infrastructure fund and planned changes to borrowing limits have fuelled optimism, driving investor interest in European assets.
Yields on Germany’s 30-year bonds surged as much as 25 basis points, reflecting expectations of additional debt issuance. This move underscores a shift in fiscal policy, as Germany moves away from its traditionally cautious stance on borrowing. Investors are betting that increased government spending will stimulate economic activity, potentially reducing the need for aggressive rate cuts from the European Central Bank (ECB).
The euro rose 0.3% to $1.0405, consolidating after a 4.3% weekly gain—the strongest rally since March 2009. Market participants now await the ECB’s policy decision later in the day, with a 0.25% rate cut widely expected. However, traders will focus on forward guidance, particularly regarding the pace and extent of future easing.
Technical Outlook
EUR/USD has been in a strong uptrend, gaining 0.14% for the session. The price opened at 1.07881 and closed at 1.08031, reaching a high of 1.08223 and a low of 1.07831. The moving averages (5, 10, 30) continue to support the bullish trend, with the price holding above them. However, the MACD is starting to flatten, suggesting that buying momentum is slowing down, and a potential consolidation phase may be ahead.
Picture: EUR/USD rally stalls near 1.0820 as momentum slows, as seen on the VT Markets app
If the pair breaks above 1.0825, further upside toward 1.0850-1.0870 is possible. On the downside, support is seen at 1.0750, where buyers could step in to prevent a deeper pullback. Traders should watch for ECB policy developments, U.S. economic data, and risk sentiment, as these factors could drive the next move in EUR/USD.
Traders remain cautious ahead of the US non-farm payrolls report, which will provide further clarity on the Fed’s stance. If US job growth continues to slow, the dollar may weaken further, supporting additional euro gains.
