EUR/USD: Germany's budget and the US GDP on today's menu

The euro was attempting to break free from the grip of a sideways channel, continuing to gain ground between the 20-day moving average (support) and the upper bound of the Bollinger Bands (resistance), driven by the combination of two forces.

1) On the one hand, a sudden weakening of the dollar due to renewed pressure from the US government (or rather, from Donald Trump himself) on the Fed chairman.

Donald Trump welcomed his departure next May because he "finds him pretty terrible." The White House incumbent also indicated that he had three to four people in mind to succeed him...

This comes as the Fed chairman has just completed his two-day hearing before Congress. During this traditional biannual hearing, Powell played down the tide, highlighting the strength of employment and the potential inflationary consequences of the White House's tariff policy.

"True to his current mantra, Jerome Powell persists in his stance of strategic patience. Faced with inflation still deemed too uncertain, the impact of tariffs difficult to quantify, a generally resilient economy, and a labor market far from breaking point, the Chairman of the American institution sees no reason to change monetary policy and certainly does not want to react prematurely," notes Thomas Giudici, Head of Fixed Income at Auris Gestion.

The asset management decision-maker notes, "however, while the job market maintains a facade of full employment, it nevertheless shows some signs of fragility, particularly through the slowdown in job creation and the increase in benefit applications. Above all, the decline in the participation rate, which Jerome Powell was careful not to mention but which is largely influenced by the marked decline in immigration, could artificially contribute to keeping the unemployment rate low. Thus, while FOMC members voted unanimously in favor of the status quo (maintaining key rates in the 4.25% - 4.5% range) and still anticipate two rate cuts by the end of the year, their forecasts are becoming increasingly scattered in the face of uncertain macroeconomic scenarios: ten members forecast two or more rate cuts this year, while nine see one or fewer."

2) On the other hand, the single currency found support in the approval by German parliament of a substantial 2026 budget, particularly for infrastructure and defense. "This new budget should significantly improve the economic trajectory. However, in the short term, challenges from abroad (customs tariffs) and at home (demographics) will likely continue to weigh on growth," Nomura economists analysed. "Moreover, trend growth may take time to respond positively after years of fiscal neglect. That said, given the remaining excess capacity, we do not expect this fiscal generosity to cause significant inflation or jeopardize further ECB rate cuts."

Statistically, the final Q1 US GDP data were very disappointing (-0.5% versus -0.2%). There was no change regarding weekly jobless claims. On the other hand, durable goods orders (excluding automobiles) pleasantly surprised, increasing by 0.5% month-on-month, versus the expected +0.1%.

Right now, the EUR/USD is trading at $1.1715.

KEY CHART ELEMENTS
The breakout from the technical straitjacket is confirmed, giving greater meaning to the support at the 20-day moving average (in dark blue).

The long position on the spot market can be maintained as long as oscillations continue between this trendline and the upper limit of the Bollinger Bands (20; 2.5).

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

Our entry point is at $1.1696. The price target for our bullish scenario is $1.2213. To protect your invested capital, we recommend placing a protective stop loss at $1.1524.

The expected return on this Forex strategy is 517 pips and the risk of loss is 172 pips.