- Euro vs. US Dollar (EUR/USD) bulls are still seeking more stimulus to complete their upward rebound attempts, as their recent gains did not exceed the resistance level of 1.0528, the highest for the EUR/USD pair in a month.
- The gains of the most popular currency pair in the Forex market have halted amid growing concerns about the prospects for European defence spending.
- The potential future German Chancellor, Friedrich Merz, ruled out a rapid reform of the country's borrowing limits and said it was too early to determine whether the outgoing parliament could approve a significant increase in military spending.
- At the same time, economic data showed an unexpected weakness in German consumer sentiment ahead of March, while French morale improved to a four-month high in February.
ECB Meeting Under Scrutiny
On another front affecting the currency market, investors remained cautious ahead of the European Central Bank’s policy meeting next week, where the bank is widely expected to cut interest rates for the fifth consecutive time. European Central Bank policymaker Joachim Nagel recently indicated that further interest rate cuts remain an option if inflation continues to fall towards the target, while his colleague Isabel Schnabel said that the ECB may be approaching a point where it needs to pause or stop the cuts.
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Trading Tips:
The EUR/USD pair is at an important crossroads, considering that the factors of the US dollar’s strength are important and may continue more than the euro, and therefore its gains may be subject to a rapid collapse.
European Stock Markets Witness Strong Gains
During yesterday's session on stock trading platforms, European stock market indices closed sharply higher after a series of quiet sessions, amid a set of strong corporate earnings, while markets continued to assess the risks to European corporate returns amid trade barriers from the United States and expectations of increased government spending focused on defence.
According to the trading, the Stoxx 50 index jumped 1.5% to 5,530, 5 points away from its record, and the Stoxx 600 index rose 1.6% to a new record at 560. In terms of corporate stock performance, AB InBev shares rose 8.7% after reporting stronger-than-expected fourth-quarter earnings, and Munich Re shares jumped 4.8% after beating earnings estimates and increasing its dividend. In addition, shares of both Siemens and Schneider extended the strong momentum of the week, each gaining more than 3%. Meanwhile, ASML shares jumped 2.5% ahead of Nvidia's long-awaited results, which are set to impact shares in the chip sector globally. On the other hand, shares of Deutsche Telekom and Stellantis fell 4.5% and 2.7% after publishing their results and guidance.
EUR/USD Forecast in the Coming Days
In this regard, according to currency market experts. While Deutsche Bank is pulling back from its short EUR/USD trade, Citi and BNP Paribas remain bearish, citing political uncertainty, trade headwinds and a stronger investment case elsewhere. Deutsche Bank recently closed its short EUR/USD position, which was initiated at 1.1200, citing recent political developments in Germany as a key factor in its decision.
Meanwhile, Citi Research has initiated a short EUR/USD trade at 1.0467, targeting a range of 1.0175-1.0200, with a stop loss at 1.0610, based on a range-bound USD outlook. Citi believes the EU is likely to secure the least favourable outcome in the Ukraine ceasefire deal, while ongoing tariff issues will continue to act as a headwind, and post-election reforms in Germany are expected to take some time.
Despite these concerns, Citi remains comfortable holding its short position in a positive trade as long as the ranges hold. Additionally, large option expirations are currently dominating market activity. On the other hand, BNP Paribas’s currency analysis team maintains a bearish bias on the euro against currencies that are expected to be more resilient, such as the Australian dollar. The bank recently recommended a short position on the EUR/AUD pair, citing improved domestic fundamentals for the Australian economy and a more supportive investment backdrop.
EUR/USD Technical Analysis Today:
According to trading on the daily chart, the attempts to rebound upwards for the EUR/USD pair still lack strength and bulls will need to move towards the resistance levels of 1.0630 and 1.0740 to confirm stronger control over the general trend. At the same time, these are important levels for technical indicators to move towards strong overbought levels. On the other hand, and on the same time frame, breaking the support of 1.0370 will be important to take the lead of the trend and thus prepare for stronger losses. Decisively, we still prefer to sell EUR/USD from every uptrend but without risk.
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