EUR/USD: A horizontal consolidation canal

The euro continued to strengthen against the dollar, with the support of the vote by the Bundestag, the lower house of the German parliament, to reform the so-called "debt brake" mechanism. This reform is a prerequisite for the successful implementation of the mega investment plan worth several hundred billion euros in defence and infrastructure.

Aline Goupil-Raguenes of OSTRUM AM sums up: "Public spending and investment in defence and infrastructure will increase significantly in Germany over the next few years, which will benefit growth". However, she adds that "the effect is unlikely to be felt before 2026, given that Europe currently obtains most of its defence supplies from the United States. This is not going to change quickly, given the constraints on production capacity. The same applies to infrastructure investment, which by its very nature will take time to be implemented and have an impact on growth. There is a time lag between investment planning, approval, allocation and implementation".

"The United States' abrupt about-turn towards its allies, its likely withdrawal from NATO, and its rapprochement with Russia, are a shock to Europe, forcing it to react quickly. This is the only positive aspect of Donald Trump's return to the White House," the asset management executive stated.

Traders are also digesting the Fed's latest FOMC (Monetary Policy Committee) meeting, which ultimately only highlighted the monetary institution's delicate course. As expected, the US central bank kept its key interest rates unchanged. However, the "dot plots," i.e., the projections (and not forecasts) of Fed members, have been published. They show that central bank members are more pessimistic about US growth as well as inflation.

"So this is neither a dovish nor a hawkish pause, but a pause justified by uncertainty. The Fed is understandably less convinced, but it is aligned with the market on the future direction of key interest rates. It is also expressing greater concern about slowing economic growth and rising inflation resulting from uncertainty surrounding government policies," says Jack McIntyre, portfolio manager at Brandywine (a subsidiary of Franklin Templeton).

These economic forecasts, updated quarterly, have been lowered: +1.8% GDP growth versus 2%, 2.6% inflation, versus 2.4% in the last projections, and 4.5% unemployment at the end of 2025, versus 4.3% of the labour force.

"The Fed is therefore navigating somewhat blindly, without being able to anticipate the long term," according to Gregoire Kounowski, Investment Advisor at Norman K. "This is likely to irritate Donald Trump. Last night, he again urged the institution to lower its rates, even though, according to him, "US tariffs are beginning to (easily!) make their way through the economy." In the past, the American president has repeatedly criticized Jerome Powell (whose term runs until 2026) and his rate-cutting policy, which he considers too slow. The fact remains that the Fed is still independent of political power... at least for now."

Watch the Eurozone Consumer Confidence Index at 16:00 (EU time).

Right now, the EUR/USD is trading at $1.0830.

KEY GRAPHIC ELEMENTS
The break above $1.0608 amid significant volatility is a game-changer for the currency pair's configuration. The pair has just validated a resumption of support on the long-term 50-day moving average (in orange), initiating a resource pattern. The scenario of a rapid decline towards perfect parity (1 euro = $1) is invalidated.

MEDIUM-TERM FORECAST
In light of the key chart factors we have mentioned, our medium-term view on the EUR/USD exchange rate is neutral.

We will maintain this neutral view as long as the EUR/USD exchange rate is positioned between the support at $1.0758 and the resistance at $1.1012.