The slowdown in the global economy, heightened geopolitical risks, rising oil prices, and concerns about Germany’s fiscal profligacy have caused the EURUSD pair to retreat. However, bulls are not giving up. Let’s discuss these topics and draw up a trading plan.
The article covers the following subjects:
Major Takeaways
- The market questions Germany’s fiscal stimulus.
- The global economy risks slowing down.
- The US administration continues to put pressure on the Fed.
- The EURUSD pair’s trajectory depends on the test of 1.1725.
Weekly Euro Fundamental Forecast
Patience and hard work always pay off. When patience runs out, sell-offs begin. German investors have given up waiting for Friedrich Merz’s fiscal stimulus measures to finally take effect and for Russia and Ukraine to meet for negotiations. The first drop in Germany’s business climate index, coupled with Donald Trump’s war-mongering statements about the conflict in Eastern Europe, caused the EURUSD exchange rate to plummet.
German Business Confidence Index
Source: Bloomberg.
Yesterday, the OECD released a statement indicating that the latter half of the year is likely to be more challenging for the global economy than the initial six months. The initial surge in imports of American goods prior to the implementation of tariffs is beginning to wane. China is no longer implementing fiscal stimulus measures to the same extent as it previously did. Investors are beginning to doubt that US companies will continue to experience linear growth in their revenues driven by AI. When German businesses recognized that the shift to a more relaxed fiscal policy was not as beneficial as anticipated, the euro dropped.
The decline in the EURUSD rate is influenced by a variety of factors, including sales following the Federal Reserve’s rate reduction and a re-evaluation of market expectations. The decrease in quotes is attributed to disappointment with Germany’s fiscal stimulus, the global economy’s struggle to maintain its previous growth rates, and the escalation of the armed conflict in Ukraine. The euro rose amid a thaw in US-Russia relations. At present, there is no trace of it left.
According to Donald Trump, Ukraine has the capacity to regain all lost territories. Furthermore, the United States is committed to providing Europe with as many weapons as it can purchase. What type of peace negotiations may be considered? The US president’s aggressive rhetoric has spurred oil prices, as investors anticipate secondary sanctions against Russia. This is unfavorable news for net importers of energy commodities, such as the eurozone. Furthermore, the single currency is also facing considerable pressure.
US Inflation Expectations
Source: Bloomberg.
The second consecutive decline in the S&P 500 index has also dragged the EURUSD pair down. Scott Bessent’s disappointment with Jerome Powell’s reluctance to hint at an early easing of monetary policy failed to support euro bulls. The Treasury Secretary is confident that the federal funds rate should be 100-150 basis points lower by the end of 2025. The US administration continues to put pressure on the Fed. This is especially true given that anchored inflation expectations confirm Donald Trump’s position. The US leader insists that there is no inflation in the US.
Weekly EURUSD Trading Plan
Will monetary policy and threats to the Fed’s independence be able to counter disappointment over the slowdown in the eurozone economy? The test of the support level of 1.1725 will show. The EURUSD pair has failed to settle above 1.1825, as expected, which led to a pullback. Against this backdrop, the major currency pair will likely trade within consolidation boundaries. A breakout of 1.1725 will allow traders to open short positions, while a rebound from this key level will allow them to continue buying the euro.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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